Germany warns ECB on asset bubbles

July 21, 2014 - 1:46:27 am

BERLIN: German Finance Minister Wolfgang Schaeuble warned the European Central Bank yesterday that a loose monetary policy runs the risk of causing asset bubbles.

“We can’t just leave the avoidance of bubbles to government supervision,” he told the Handelsblatt business daily. “Central banks also need to keep an eye on that in their decisions about the money supply.”

Schaeuble, speaking in a joint interview with his French counterpart Michel Sapin, said that “in parts of the property market there are signs that bubbles are forming”, reiterating earlier warnings.

But he rejected a French proposal for a targeted depreciation of the euro in pre-release extracts of the interview, which is due to be published in full today.

“I do not believe in political discussions about the exchange rate, which is set by the market,” he said, adding that government intervention had “never led to a good result”. 

Schaeuble backed the European banking union as a big step in the right direction and said he did not foresee major problems in the “stress tests” of the bloc’s banking sector.

The EU’s banking union, which is expected to become operational in November, will give the ECB the power to supervise eurozone banks and prevent bank failures.

“The examination of assets and the stress test are not yet completed. But the banks have raised a lot of extra capital,” he said, adding that now “the risk of contagion is much smaller”.

Sapin, meanwhile, stressed that Paris is committed to the strict deficit rules laid out in the European Stability Pact.

“The rules exist, the treaties exist. Nobody is challenging them, and I would not recommend it to anyone, especially not in France,” he said. “I want to stick to the European rules and, together with partners, find the right timing to lower our spending and deficits and at the same time support growth.” AFP

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