Schäuble: Central banks should help prevent asset bubbles

Wolfgang Schauble. European University Institute, March 2012. [EUI/Flickr] [EUI/Flickr]

German Finance Minister Wolfgang Schäuble called on central banks to take into account price distortions that monetary policy could have on markets and help prevent asset bubbles, in an interview published on Monday.

Schäuble sees "signs of bubbles forming on parts of the real estate markets," he said in a joint interview with French counterpart Michel Sapin in Handelsblatt.

"We cannot just leave the prevention of (asset) bubbles to the state supervisors. Central banks must keep that in mind when they take their decisions about money supply," Schäuble was quoted as saying.

But even as Schäuble reiterated his warning that ultra-loose monetary policy could lead to distortions on asset markets, he rejected French calls for the European Central Bank (ECB) to purposely weaken the value of the euro.

"I think nothing of political discussions about the exchange rate. It is formed on the market. If politics looks after that, it will not lead to good results," he said.

French officials have called for the ECB to weaken the euro and thereby help make euro zone economies more competitive.

The ECB targets price stability, which it defines as just under but close to 2 percent consumer price inflation.

The joint interview comes against the backdrop of a debate among policymakers in the single currency area about the flexibility of their rules on government budgets and spending.

Sapin said France was not looking for extra time to meet its deficit targets.

"It is not about asking for more time. I want to stick to the European rules and, together with the partners, find the right timing to lower our spending and deficits and at the same time support growth," Sapin told Handelsblatt.

"Sustainable growth is not possible with continued, high deficits," Sapin said.

In another interview published on Sunday, the head of Germany's Sparkassen savings banks association said he feared that expansive monetary policy could lead to price bubbles.

"Because so much money is coming from all angles, we are once again seeing that irresponsible risks are being taken," Georg Fahrenschon told Welt am Sonntag.

Schäuble also said, however, that the banking sector as a whole was now less risky after banks had acquired additional capital.

"There will always be problems ... but the danger of contagion is much lower," he was quoted as saying.



Southron's picture

Assets bubble? Where? In Germany perhaps - which is very bad, but not on Southern Europe. So on average, we are OK, and that is the problem.

The EuroZone is a huge "average", with a one-size fits all policy that generates excesses in some areas at the expenses of others.

There is an asset bubble in the north, while assets in the south have crashed,
The south pays huge interest rates to finance itself, while savers in the north get no return on their savings.
The Euro is too low in value for the North, and too high in value for the South.

We are all losing out, and this can only be fixed by a greater fiscal integration that promotes a balancing out of benefits and costs, while promoting the good things that we have in common.