The European Central Bank won’t be able to protect governments from higher borrowing costs if inflation spikes, Bundesbank President Jens Weidmann cautioned in an interview published Sunday.
“The ECB is not there to take care of the solvency security of the states,” the German central bank chief told Welt Am Sonntag .
Weidemann, who sits on the ECB’s Governing Council, said the European Central Bank would have to tighten its monetary policy if inflation rises sustainably.
“We will then not be able to take into account the financing costs of the states,” he told the newspaper.
EU governments have piled on debt to fund spending programs designed to combat the pandemic’s economic fallout.
That’s stirring fears that rising inflation could trigger a nightmare scenario, pushing up interest rates and saddling countries with billions in extra debt-servicing costs.
Weidmann said he could not rule out higher inflation in the long term.
“I do not consider higher inflation rates to be ruled out,” he said. “In any case, I will urge you to keep a close eye on the risk of an inflation rate that is too high and not just look at the risk of an inflation rate that is too low.”
Weidmann also argued that the ECB’s emergency bond-buying under the pandemic emergency purchase programme (PEPP) must come to an end once the crisis is over.
“It’s a question of credibility,” he said, adding that the ECB’s Asset Purchase Programme (APP) should also not continue indefinitely.
