STUTTGART, Germany (MNI) – Interest rates should not stay too low
for too long, European Central Bank Governing Council member Axel Weber
said Monday.

The central bank is “gradually” withdrawing its non-standard
measures, and as markets normalize, it will normalize monetary policy as
well, the Bundesbank president told an audience at a local bank here.

“One percent is the lowest interest rate level since Bismarck’s
times,” Weber observed. “Interest rates were never so low before and
they should not stay so low for so long,” because that could be the
source of future problems, he argued.

Foreign exchange rates are set on the market, but significant
volatility is “not helpful,” he said.

Weber pleaded for a “verbal de-escalation” in rhetoric about
so-called currency and trade wars, saying this was “absolutely
necessary.” Furthermore, “protectionist tendencies must be prevented.”

At the recent G20 meetings, “we once again reminded developing
countries, including China, that in the previous meeting they had said
they would make their exchange rate regimes more flexible,” he said.
“However, we have not seen in the direct reaction to the crisis a
flexibilization of the regime, rather a relatively rigid system” that
has now been loosened up in recent months.

“Our call to developing countries,” he said, “is ‘You must continue
on this path and do it somewhat more courageously than you have done in
the past months’.”

Growth in Germany will slow after its 2.2% surge in 2Q, Weber said,
predicting GDP gains of about 0.5% in both 3Q and 4Q. Still, activity is
not yet at the level prior to the crisis and won’t reach it for another
year or two, he said.

Eyeing the domestic economy, Weber said he does not see at present
“a broad-based credit crunch.”

Asked about global and European growth, Weber said, “Globally we
are in a very dynamic environment”, with “very strong” growth. In
Europe, however, the growth momentum is waning and will not be as strong
in the second half of the year as it was in the first, he reiterated.

Addressing the issue of whether or not he will be the next ECB
president, Weber suggested that it was better for him to focus on his
current position than “to have one eye” on his next one.

The central banker called himself an “outspoken stability-oriented
politician” and underlined that he has been one for thirty years. “If
that should have implications for my future activity, then I am happy to
live with these implications,” he said.

–Frankfurt bureau; +49-69-720142, tbuell@marketnews.com

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