VIENNA (MNI) – The rise in inflation in the Eurozone is largely due
to special factors, such as energy costs, and should be of a temporary
nature, European Central Bank Governing Council member Axel Weber
assured Thursday.

The Council sees “the current interest rate level as appropriate,”
the president of the Bundesbank said in remarks prepared for a
conference here.

Still, the Council “will very carefully observe future price
developments in order to be able to react appropriately to possible
changes to medium-term inflation expectations, which are still anchored
at a low level,” he stressed.

No doubts should arise as to the “determination of the Eurosystem
to look after price stability in the Eurozone as a whole,” Weber
intoned.

The recent rise of inflation within the Eurozone to above 2% is
“however, attributable principally to special factors, such as higher
energy costs and should, even if it persists for a few more months,
remain of a temporary nature,” he assured.

“Over the medium term, and thus over the horizon relevant for
monetary policy, inflation rates under 2% are expected, thus further
assuring price stability,” he claimed.

Earlier Thursday, the ECB’s survey of professional forecasters
showed that inflation is expected to be significantly higher this year
than was case three months ago. Average inflation this year is seen at
1.9%, 0.4 point above the Q4 survey median. For 2012, HICP is seen at
1.8%, 0.2 point above the Q4 survey median. Long-term inflation
expectations rose to 2.0% versus 1.9% in Q4.

Turning to Germany, Weber said that activity should reach its
pre-crisis level “at the earliest at the end of the current year.”

Weber reiterated that even with a reformed Stability and Growth
Pact and stronger macroeconomic surveillance, crises cannot always be
prevented. Thus, a proposed European Stability Mechanism has the
potential to arm Europe well for future crises, without thwarting a
stability-oriented policy, he argued.

“For exactly this reason, the issuance of so-called Eurobonds or
the secondary-market purchases of sovereign bonds from countries that
have fallen into a crisis are not suitable means for fighting a crisis,”
he argued.

“These instruments lead to a collectivization of risks” that
ultimately rewards insufficient budget discipline and fails to
strengthen trust in the capacity of public finances, he said.

Weber had opposed the Council’s decision last May to purchase
government bonds and then suggested in October that the program be
phased out.

Such public insubordination led some observers to think that he
might not be suitable for, nor necessarily want, the position of ECB
president when president Jean-Claude Trichet leaves at the end of
October.

Nevertheless, Weber was still considered a leading candidate. That
changed Wednesday when the media reported that he had confided in a
private meeting that he did not intend to seek a second term.

Weber told reporters here earlier that he had no comment on his
professional future until he could discuss the matter with German
Chancellor Angela Merkel.

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