The European Central Bank (ECB) Vice President Luis de Guindos has cautioned against political interference in monetary policy, emphasizing the historical link between governmental intervention and subsequent inflationary pressures and rising interest rates. Speaking to the German newspaper “Welt” de Guindos reaffirmed the ECB’s legally guaranteed independence, a critical factor for maintaining price stability within the Eurozone.
Addressing concerns surrounding rising debt levels, particularly in France and increasing defense spending across Europe, de Guindos underscored the importance of adhering to European treaty obligations to ensure sound public finances. Despite these fiscal challenges, he stated that there is currently no justification for the ECB to deploy its Transmission Protection Instrument (TPI), citing overall stability in financial markets. “There are no signs of liquidity constraints and the spreads between Eurozone government bonds are presently not a cause for concern” he noted.
De Guindos expressed optimism regarding the German economy. Recalling a period when Germany was dubbed the “sick man of Europe” he highlighted the subsequent turnaround. “I have full confidence in the German economy” he stated. He acknowledged existing challenges, including Germany’s past reliance on inexpensive energy from Russia and the evolving nature of its export-oriented business model amidst ongoing trade disputes. However, he pointed to the newly established fund for infrastructure investment as a crucial step forward.
Regarding monetary policy, de Guindos confirmed the ECB’s current course of action, asserting that prevailing interest rates remain appropriate given the inflation outlook, economic projections and the effective transmission of monetary policy. He emphasized that the decision to maintain these rates was unanimous within the ECB’s Governing Council. The Council also agreed on the need to maintain flexibility and adaptability. “Should the situation change, we will adjust our course” de Guindos affirmed, adding that central banks must avoid volatility and act with caution – a commitment the ECB intends to uphold.