Eurozone economy is not as bad as people think, German bank president says

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Growth in Germany, Europe’s biggest economy could be better than expected next year, the president of Bundesbank has said.

Jens Weidmann, a member of the European Central Bank’s Governing Council, told German newspaper Frankfurter Allgemeine Sonntagszeitung the situation in Europe is not as bad as many people think.

Mr Weidmann also reiterated his opposition to ECB plans to buy sovereign bonds in the interview.

The ECB is monitoring how the recent drop in oil prices will affect euro zone inflation, far below its target of just below two per cent, and standing ready to do more to keep the region from slipping into deflation.

“As things are at the moment and if oil prices remain this low, inflation will be lower than expected, but growth will be better,” Mr Weidmann said.

The Bundesbank this month halved its growth forecast for Germany to one per cent for next year.

It also cut its prediction for 2014 growth to 1.4 per cent from 1.9 per cent in June.

“The situation in Europe isn’t as bad as some people believe,” he said.

Having largely exhausted its policy toolkit with the key interest rate at a record lows of 0.05 per cent, broad-based purchases of sovereign bonds - also known as quantitative easing (QE) - are seen as the ECB’s last resort to revive the economy, but some ECB policymakers have reservations.

Weidmann is the most vocal opponent of such a step in the 24-member Governing Council, concerned the central bank could end up bankrolling troubled euro zone governments and lose sight of its mandate to keep prices stable.

“(With low oil prices) An economic stimulus programme has been handed to us, why should we add to that with monetary policy?” said Weidmann, adding that pressure from financial markets should not determine the ECB’s moves.

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