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INTERVIEW:ECB Should Consider Other Price Data:German Wise Man

By Luke Heighton
     FRANKFURT(MNI) - The European Central Bank should look beyond its measure
of inflation when formulating policy, considering a broader range of price data,
a member of the five-member German Council of Economic Experts told MNI.
     If GDP expenditure-based measure move up more than the eurozone's HICP
harmonised measure of consumer price inflation, "that's worth including in the
policy consideration and communication," Volker Wieland said in an interview,
which took place before the ECB launched its review of monetary policy strategy
on Thursday.
     Wieland was critical of the ECB's decision last September to restart its
asset purchase programme, saying that the risks were not justified by a
potential boost of a few basis points in HCIP inflation. While inflation is
below the ECB's target of close to, but below 2% in the medium-term, justifying
accommodative monetary policy it is not so far below that it calls for an
extremely accommodative stance.
     "The negative side effects of these policies should have more weight in
monetary policy discussions," he continued. "Yet, even without bringing in the
question of side effects, they could have pointed to the increase in broader
inflation measures such as the GDP deflator and forego restarting government
debt purchases."
     Should a crisis or deflation occur, the ECB could massively ramp up its
balance sheet, including by buying equity, "But these balance sheet policies are
more effective when risk premia are high. I don't think the present situation
requires that, so building up the balance sheet now, when risk premia are
already very low, is actually a drawback."
     However Wieland, who served alongside Isabel Schnabel on the GCEE prior to
her joining the ECB's Executive Board earlier this year, cast doubt on whether
the ECB would need to conduct fiscal transfers - so-called Helicopter Money - in
part because it already does so.
     "Look at the German government," he said. "They have these tremendous
interest rate savings partly due to monetary policy, partly due to other
factors. And what is the government doing with this money? It's increasing
transfers to pensioners and other groups. So that's not very different from
helicopter drops.
     Wieland warned against making climate change a core part of the ECB's
mandate, saying it would risk drawing the bank into global political battles.
     "If that's how you proceed, the ECB could be dragged into supporting many
other EU policies," Wieland said. "For example, it is just as good an argument
to get involved in trade policy. If the U.S raises tariffs, the ECB could be
asked to intervene to lower the exchange rate."
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: M$X$$$,MT$$$$,MX$$$$,M$$EC$]

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