after the results of the French election..
Bundesbank signals softening on inflation
By Ralph Atkins in Frankfurt
"The Bundesbank, the most hawkish of central banks, has signalled it would accept higher inflation in Germany as part of an economic rebalancing in the eurozone that would boost the international competitiveness of countries worst-hit by the region’s debt crisis.
A future German inflation rate above the eurozone average could be part of a natural adjustment process as crisis-hit countries pulled themselves out of recession, the Bundesbank argued in evidence to German parliamentarians submitted on Wednesday.
It followed comments at the weekend by Wolfgang Schäuble, German finance minister, backing stronger wage increases, which would boost domestic demand – benefiting other European countries exporting goods and services to Germany – but could drive German inflation rates higher.
The Bundesbank has for some time seen European Central Bank policy as too loose for Germany. The willingness to contemplate higher domestic inflation in public comments points to a new-found flexibility in German thinking.
Despite the Bundesbank’s conciliatory stance on inflation, German policy makers have been among the toughest in insisting that Greece sticks to its agreed reform programme underpinning its bailout in the aftermath of Sunday’s Greek election in which most voters rejected the plan. Speaking in Brussels, Mr Schäuble said that changing the bailout terms would unleash ‘’catastrophic uncertainty’’ in financial markets.
In its evidence, the Bundesbank rejected “actively” weakening the competitiveness of German companies or loosening fiscal policy in the hope of boosting demand elsewhere in the eurozone, but it argued that as crisis-hit “periphery” economies restructured, their competitiveness relative to Germany would improve."