Plea for tighter money

The demand on the European Central Bank is unequivocal: “We need an end to the expansive monetary policy! Immediately!” demanded Clemens Fuest. The President of the Munich Ifo Institute did not allow any misunderstanding to arise in his native city of Münster on Monday evening: “The basic tone of monetary policy has long been far too expansive.” That means: The economic researcher has long wanted higher key interest rates. At the general meeting of the Association of the Northwest German Textile and Clothing Industry, he under no circumstances accepted the excuse of some currency watchdogs that the current inflation is primarily driven by energy prices and therefore cannot be stopped by higher interest rates: “If the ECB tightens money, the value of the euro will increase”. , so Fuest – and that would make crude oil cheaper because it is traded in dollars.

The currency watchdogs would have to be careful now, because “a horror scenario” was looming for the central bank. Reason: Due to the currently high collective bargaining demands of the unions, a wage-price spiral could start. “If the ECB does not react quickly now, it will only get the situation under control again with a massive brake on the economy,” said the Ifo boss.

Is there a risk of stagflation – i.e. a shrinking economy with sharply rising prices? That indicated Dr. Wilfried Holtgrave, President of the Association of the Northwest German Textile and Clothing Industry. Fuest also sees major economic risks – especially in the event of a gas embargo against Russia. Then a decline in gross domestic product of around five percent would be expected in Germany – “as in the Corona crisis”. In that case, according to Fuest, inflation should reach five percent in 2023, without an embargo 2.8 percent.

Fuest advised against completely stopping gas imports from Russia in the long term. And even in the short term, the economist doubts that stopping gas supplies will shorten the Ukraine war. “In order for Putin to run out of money, you have to endure such an embargo for a very long time.”