Seldom are statements of the obvious as significant as the Bundesbank’s comments yesterday that Germany might well have to tolerate higher inflation than the rest of the eurozone in the coming years.
Jens Weidmann often cites the EC Treaty’s prohibition of monetary financing as an argument against stepping up the European Central Bank’s purchases of government debt. It would be hypocritical for the Bundesbank president to argue against what is also implicit in the legislation that governs the ECB: that the governing council sets monetary policy for the eurozone as a whole, not individual member states.
Above-target inflation is the natural result of Germany’s position as the bloc’s strongest economy at a time when the divergences between member states’ fortunes are becoming more and more pronounced.
Still, from a central bank more aware than most of the social and economic carnage that accompanies the debasement of currencies, the Bundesbank’s acceptance that higher inflation is a price that it must pay as part of its commitment to monetary union is to be welcomed.