FRANKFURT (MNI) – European Central Bank Governing Council member
and renowned inflation hawk Axel Weber again warned Tuesday about
potential upside risks to price stability in the Eurozone.

The unexpectedly strong inflation increase in December was a result
of “special factors”, especially more expensive energy, Weber said in
remarks prepared for a conference here.

December’s inflation level “does not yet point to a sustained
endangering of price stability,” the president of the Bundesbank said.

“Over the medium term, inflation rates (HICP) under 2% are still to
be expected in the Eurozone just as in Germany,” he said.

“At the same time, inflationary risks are still balanced to the
greatest extent possible,” he said. “However, upward risks could
increase.”

“The ECB Governing Council still sees the current main interest
rates as appropriate,” he underlined.

“At the same time, future price developments must and will be
monitored very precisely,” he stressed. Nevertheless, “it is of
particular importance that financial market data and surveys still prove
the solid anchoring of inflation expectations.”

Favorable economic developments along with the end of economic
stimulus programs, as well as measures to consolidate finances, all
point to a decline in Germany’s public deficit to below 3% of GDP this
year, Weber said: “We expect a value of 2.5% after 3.5% last year.”

But Germany remains “a good way off” from the goal of a balanced
budget, Weber reminded. To reach that goal requires still more savings,
abstaining from “spending fantasies” and avoiding shortfalls in revenue.

In terms of fiscal probity, Germany has an important job as a role
model for other countries in the Eurozone which are in worse fiscal
shape, Weber argued.

Since tougher fiscal rules and macroeconomic surveillance cannot
prevent all crises, “an expanded long-term crisis-resolution mechanism
is sensible and necessary,” the Bundesbank head said.

For Germany, which in some ways found it painful to give up its
D-mark a decade ago, Weber warned against “nostalgic” feelings for the
national currency. Indeed, viewed objectively, the euro is a success
that Germany has very much profited from and continues to gain from, he
pointed out. “The euro is at least as stable as the D-Mark and will
remain so.”

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–Frankfurt bureau, +49-69-720142, tbuell@marketnews.com

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