Bundesbank President Jens Weidmann has welcomed the United States’ decision to initially exempt the European Union from the recently enacted tariffs on steel and aluminium. Speaking in Vienna, Mr Weidmann said that this reduced the risk of the current trade conflict escalating. "Nonetheless, this is no victory for international free trade," he added, as the punitive tariffs for other countries, unable to secure preferential treatment for themselves, remained in place.

Mr Weidmann advocated strengthening and expanding the multilateral trading system. "The objective must be not only to prevent new barriers to trade or keep them as low as possible, but also to eliminate existing barriers," he explained. At the event, Ewald Nowotny, Governor of the Österreichische Nationalbank, awarded Mr Weidmann the Grand Decoration of Honour in Gold with Star for Services to the Republic of Austria.

Monetary policy normalisation a step closer

Given the currently buoyant economic situation in the euro area, Mr Weidmann described market expectations of a first rate hike around the middle of 2019 as "not wholly unrealistic". Price pressures in the euro area remained sluggish. Nonetheless, in their most recent projections, the European Central Bank’s economists said they expected inflation to rise to 1.7% by 2020. This figure was "broadly" in line with the medium-term definition of price stability, Mr Weidmann explained. With that in mind, it was no surprise that financial markets had, for some time, been expecting net asset purchases to end before 2018 is out.

Asymmetrical monetary union susceptible to crises

In his remarks, Mr Weidmann also discussed institutional reform of the monetary union. He considered it a mistake, he said, to reduce the discussions about the EU’s financial framework to issues surrounding net payments to the EU budget. "It would make more sense to first clarify which tasks the European Union is to take on in future, which tasks it might be possible to return to the member states, and where savings could be made." Once that had been accomplished, policymakers should go about clarifying how joint responsibilities should be funded.

Mr Weidmann believes that the euro area is currently in a much better position compared with 2010. A shock such as the Greek crisis would no longer find the euro area in such an unprepared state, he said. "But the euro area isn’t yet permanently crisis-proof," he warned. He therefore welcomed the fact that France’s President Emmanuel Macron has given the debate fresh momentum with his reform proposals.

"Joint liability must come with the option of co-determination"

It would send the wrong signal, Mr Weidmann believes, to mutualise risks that arose under national responsibility. It was important, he explained, first to make significant progress in getting rid of legacy risks. That included the outstanding stocks of non-performing loans and sovereign bonds on banks’ balance sheets, the Bundesbank’s president explained. As long as it remained possible for actions at the national level to have a substantial impact on banks, there was little scope to expand the liability of savers or taxpayers from other member states, Mr Weidmann said. It was essential that the unity of actions and liability for their consequences be maintained, for it was only in so doing that a stable regulatory framework could emerge in which monetary policymakers were free to concentrate on their mandate of preserving price stability. "After all, it won’t do them any good in the long run to have to intervene constantly as a crisis response unit," Mr Weidmann warned.