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By Luke Heighton
     FRANKFURT (MNI) - A decline in German third quarter GDP leaves the eurozone
economic upturn intact and monetary policy must return to normality without
unnecessary delay, the president of the German central bank said Wednesday, as
he criticized Italy over its ongoing battle with Brussels.
     Here are key points from Jens Weidmann's speech in Berlin:
     -- The "slight decline" in German economic output reported in Q3 is due
mainly to a slump in the car industry, as manufacturers adjust to the
certification of vehicles according to new emissions standard. Recent
unfavourable economic news and "fluctuations in the numbers ... must not hide
the fact that the economic upturn in Germany and the eurozone remains intact".
     -- It is "clear" the currency bloc "cannot lose time unnecessarily on the
long road back to monetary policy normality. We must not take risks and side
effects of extremely loose monetary policy lightly. Now, in a robust economic
recovery, is not the time to ease the fiscal reins in the euro area".
     -- September's ECB staff projections suggest inflation rates in the euro
area should reach 1.7% this year and next. The end of the asset purchase program
"is only a first step in a gradual monetary policy normalization. The next steps
depend on how the data wreath develops".
     -- It is not up to central banks to build cross-country consensus in fiscal
matters, while the monetary tools available to them are becoming progressively
fewer. The task of macroeconomic stabilization "will therefore have more to do
with fiscal policy than previously". Rather, the euro countries should reduce
their still high debt burden. "This is especially true for those countries that
carry a particularly heavy load, Italy for example".
     "It is perfectly legitimate for a new government to set new political
accents ... However, as far as these are associated with additional expenses, it
would be advisable to reduce other expenses or to increase revenue. The
necessary debt reduction must not be waived".
     -- Although uncertainty had a noticeable impact on economic activity during
the financial crisis, "no negative influence can be demonstrated for the recent
past. The connection between uncertainty and the real economy is not as close as
is often assumed", and political uncertainty in particular "seems to have little
explanatory power".
     -- That the macroeconomic effects of recent crises in Argentina and Turkey
have been contained is "an important point". New trade agreements and efforts to
reform the WTO mean the danger of a broad escalation of the trade conflict has
also decreased of late, even as the U.S. and China continue to confront one
     -- Low interest rates have allowed firms that should have left the market
to remain. "The proliferation of zombie companies is detrimental to productivity
development. And that slows potential growth; that means headwind."
--MNI Frankfurt Bureau; +49-69-720-146; email:
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: M$E$$$,M$G$$$,M$X$$$,M$$EC$]
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