Inflation is now the biggest threat to public spending and the European Central Bank should act on its mandate to stabilize prices as stated by German Finance Minister Christian Lindner. The statement came as the ECB maintained its policy stance generally unchanged on Thursday.
He stressed that the main mission of the ECB at the moment is to stabilize prices, but the ECB is skeptical in generating economic growth. " Rising prices threaten the willingness to invest and weaken consumption. Inflation is the biggest threat to finances and public prosperity, ”Lindner said.
Confirming its initial guidance, the ECB said it plans to reduce bond purchases, commonly known as quantitative easing, during the quarter, then end it at some point in the third quarter.
Interest rates, however, will be raised after the end of bond purchases and this increase will be gradual, the ECB added.
The German government, like most countries in the european zone, had to roll out tax relief packages, subsidies and loans to help households and companies squeezed by soaring energy prices then exacerbated after Russia’s invasion of Ukraine.
Germany is expected to increase new debt by 224 billion euros ($ 243.15 billion) to fund increased defense spending, inflation relief measures as well as help Ukrainian refugees.
On that basis, Lindner argues that subsidies must be capped and integrated measures must be taken to increase productivity and growth, otherwise the economy will be mired in stagflation,
The Russia-Ukraine conflict has dragged the European economy under pressure to break free from Russian gas and oil.
