Germany’s Economy: Message To The Bundesbank

He is not the best-known player in the euro crisis, but over the next couple of years Jens Weidmann, who this week celebrated his first anniversary as president of Germany’s Bundesbank, will be one of the most important. The euro zone’s future hinges on when and how its peripheral economies can return to growth. And, put crudely, their ability to do so will depend a lot on whether Mr Weidmann and the Bundesbank will tolerate higher inflation in Germany, The Economist reported. Asking a central banker to accept higher inflation may seem like asking a cardinal to accept more sin. All the more so in Germany, where the importance of price stability is etched on the collective psyche. Most of the time that German instinct is right. Tolerating higher inflation is risky. It can be hard to squeeze down again. Yet Germany will need to live with slightly frothier prices for the next few years. Both the arithmetic of euro-wide inflation and the mechanisms of rebalancing growth in the currency union demand it. If the Bundesbank resists, the single currency could come apart. Read more.