NEW YORK (Reuters) - The European Central bank should stick to its “narrow” mandate of safeguarding price stability in the euro zone or risk losing independence from governments, the head of Germany’s central bank, Jens Weidmann, said on Wednesday.
Weidmann, one of the long-standing critics of the ECB’s stimulus measures, was weighing in on a nascent debate on how the central bank should change its strategy under incoming President Christine Lagarde.
“In my view, it is all the more important for central banks to stick to a narrow interpretation of their mandate,” Weidmann told an audience in New York. “If the mandate were interpreted broadly, independence would be called into question sooner or later, and rightly so.”
The ECB has missed its inflation target of just under 2% for the best part of a decade and Lagarde promised a broad review of the central bank’s monetary framework.
Weidmann also dismissed accusations from U.S. President Donald Trump that the ECB was acting with a view to devaluing the euro and warned about the effects of a trade war on the United States’ own economy.
“Assuming...new tariffs of 25 percent were imposed on all bilateral trade flows between the U.S. and the EU, a simulation by the Bundesbank suggests that such a trade war could shrink the U.S. output level by 1.5 percent over the medium term,” he said.
Reporting by Balazs Koranyi; Writing by Francesco Canepa in Frankfurt; Editing by Alexandra Hudson