FRANKFURT (MNI) – Fiscal consolidation across the Eurozone may
allow the European Central Bank to keep interest rates low, supporting
the recovery, the Bundesbank said in its Monthly Bulletin on Monday.
The German central bank rejected criticism that fiscal
consolidation across the Eurozone threatened to throw the region back
into recession.
Fiscal consolidation in a number of Eurozone countries “could give
monetary policy some leeway,” since a drop in demand might reduce price
pressures, the Bundesbank said.
“A price stability oriented monetary policy could take this into
account in its assessment of price developments and the resulting
[monetary policy] stance,” the Bundesbank said.
This would also minimize the risk that fiscal consolidation could
endanger the Eurozone’s recovery, the central bank said.
The Bundesbank also said simulation studies had shown that
Germany’s consolidation efforts had only limited impact on demand in
other Eurozone countries.
The study found that “simultaneous consolidation efforts in Germany
and the rest of the Eurozone do not result in significant mutually
reinforcing demand drops.”
Germany has recently been criticized for enacting austerity
measures that further hamper demand at a time when other Eurozone
countries may become more dependent on German spending.
–Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com
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