Europe’s economy isn’t that bad, Germany’s top banker argues

Europe’s economy isn’t that bad, Germany’s top banker argues

The European Central Bank is contemplating quantitative easing to jump-start the economy, but low oil prices should make that move unnecessary, Weidmann argues.

The economic situation really isn’t so bad in Europe, and its biggest economy — Germany — could be poised for a good year in 2015, the president of Germany’s Bundesbank said on Sunday.

Jens Weidmann, a member of the European Central Bank’s Governing Council, said during an interview with Frankfurter Allgemeine Sonntagszeitung growth “will be better,” and the struggling European economy is on the cusp of growth, according to Business Insider.

The European Central Bank (ECB) is watching how the fall in oil prices is going to affect euro zone inflation, which currently sits well below the target of about 2 percent.

Weidmann said growth will be better despite oil prices remaining low. Even though the Bundesbank this month halved its growth forecast for Germany, the situation in Europe “isn’t as bad as some people believe,” he said.

The key interest rate has sat at record lows of 0.05 percent in order to stimulate growth, and some policymakers advocate large-scale purchases of sovereign bonds — a practice known as quantitative easing — to jump-start the German economy.

However, Weidmann disagrees with this approach because he feels it places the German government at risk of bankrolling other struggling governments in the euro zone and fail to keep prices stable. He feels that low oil prices is an economic stimulus program that “has been handed to us,” and questioned the logic of adding a monetary policy to that.

Plummeting oil prices over the last three months have had major economic impacts around the globe, as they have dropped 40 percent to their lowest levels since the crash of 2008-2009. Citigroup estimates that the drop has stimulated the world economy at an equivalent rate as a $1.1 trillion cash infusion. However, the drop may come at a price, with Goldman Sachs estimating that $60 per barrel oil could threaten $1 trillion in new investments in oil production.

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