14 May 2012

Peter Bofinger: Higher inflation [in Germany] 'would not be a disaster'

Germany has a history-inspired fear of inflation -- but Bofinger, a prominent economic adviser to the German government, argues that higher prices at home could help foster eurozone recovery. In a Spiegel interview, he says that rising prices in Europe's biggest economy could put crisis-stricken neighbours on the road to recovery.

SPIEGEL: Germany's central bank, the Bundesbank, has refuted reports it would accept a higher inflation. Is that argument credible?

Bofinger: Any other position would be an overestimation of their importance. The Bundesbank's influence on price trends in this country is as limited as that of myself or any other citizen. Eurozone inflation is controlled by the European Central Bank and the Bundesbank President is one of 23 decision-makers.

SPIEGEL: Can faster price growth in Germany help stabilise the currency union?

Bofinger: Absolutely. If our wages were to rise faster than in the past, thus slightly increasing the inflation rate, that would be a good way to help us get out of the euro crisis. To boost the competitiveness of crisis countries, they can cut their salaries, which is a very painful step -- or, alternatively, our wages could increase further.

SPIEGEL: Critics fear that we will then lose our competitiveness compared to countries like China.

Bofinger: That is total nonsense. In recent years, the euro crisis has given us a weaker currency, much to the benefit of the German export economy. Our rosy situation is due to the euro more than to Gerhard Schröder's Agenda 2010 (the former chancellor's economic reform package).

Full interview

© Spiegel Online