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."

     --CRISIS RESPONSE

     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: jason.webb@marketnews.com

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