German Chancellor Olaf Scholz’s government must be careful not to undermine the European Central Bank’s inflation fight by taking on unnecessary debt, according to the country’s chief economic adviser.
(Bloomberg) — German Chancellor Olaf Scholz’s government must be careful not to undermine the European Central Bank’s inflation fight by taking on unnecessary debt, according to the country’s chief economic adviser.
The danger that inflation expectations deanchor still can’t be ignored, Monika Schnitzer who leads an independent five-member panel that monitors the economy, told journalists in Frankfurt. That means the ECB’s campaign to raise interest rates “isn’t and shouldn’t be over yet.”
“Fiscal impulses mustn’t become so big that they make the ECB’s life harder than it already is,” Schnitzer said. “We asked the government to please make sure not to take on too much debt, for things that aren’t necessary.”
Scholz’s ruling coalition has earmarked tens of billions of euros to help households and businesses hit by soaring power costs. The federal government plans to issue a record volume of debt this year to fund its generous aid that includes a cap on gas prices.
With inflation in Germany and the euro zone still close to 10%, the ECB is pushing on with tightening. It raised rates by a total of 250 basis points in the second half of last year and is widely expected to deliver another half-point step next week. More hikes are likely to follow as policymakers unwind their bond holdings starting in March.
Schnitzer argued that while the ECB was late in kicking off rate increases, it has since acted “quickly and with determination.”
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.