French PM calls for more action on euro from ECB

French prime minister Manuel Valls called for more action from the European Central Bank to lower the value of the euro, amid concerns the 18-nation zone might be headed toward deflation.

“The monetary policy has started to change,” Mr Valls said yesterday in a speech made at the Socialist Party’s summer school in La Rochelle, France. While he called the ECB’s package of measures taken in June a “strong signal,” he also said that “one will have to go even further”.

His comments come after ECB president Mario Draghi, who will meet French president François Hollande today in Paris, signalled that declining inflation expectations are pushing the central bank toward introducing quantitative easing.

But German finance minister Wolfgang Schäuble said yesterday that deficit-fuelled growth leads to economic decline, signaling discord with Italy and France as euro-area policy makers seek ways to avoid deflation and spur growth.

Austerity policies

Euro zone countries that pursued austerity policies in return for sovereign bailouts are “doing much better than all the others in Europe”, Mr Schäuble said at a town-hall event in Berlin.”

Policymakers will gather in Frankfurt on Thursday for their monetary-policy meeting.

Inflation in the currency bloc slowed to 0.3 per cent in August from a year earlier, the lowest since 2009, compared with an ECB target for price growth of just under 2 per cent.

Mr Draghi has said the ECB stands ready to embark on unconventional measures such as broad-based asset purchases to avoid a deflationary spiral of falling prices and households postponing their spending plans.

Speaking at the annual economic symposium in Jackson Hole, Wyoming, last month, Mr Draghi said he will use “all the available instruments needed to ensure price stability” and ECB officials are “ready to adjust the policy stance further”.

Mr Draghi also called for complementary action on a European level and “a large public investment programme”.

Merkel disgruntled

German chancellor

Angela Merkel

was disgruntled with the comments and called Mr Draghi to ask if the ECB had changed course on austerity,

Der Spiegel

reported yesterday, without saying where it got the information.

The magazine’s assertion that Ms Merkel “demanded answers” from Mr Draghi “in no way corresponds to the facts”, the chancellor’s spokesman said in a text message.

The debate about further ECB stimulus to help jumpstart the euro-area economy has gathered momentum three months after Mr Draghi introduced a range of measures including a negative deposit rate and targeted long-term loans for banks.

The euro has weakened almost 4 per cent since June 5th, when the ECB cut all its main interest rates, to $1.3132 at the end of last week.

The ECB "is ready to offer additional liquidity to the banks, on condition that the banks increase their credit to the real economy," ECB executive board member Benoit Coeure wrote in an essay in Greek newspaper Ta Nea on Saturday.

– (Bloomberg )