FREIBURG, Germany, Feb 11 (Reuters) - Discussions about an overvaluation of the euro are simply a diversion from governments’ task of sorting out their economies, European Central Bank policymaker Jens Weidmann said on Monday, resisting political pressure to weaken the currency.
The ECB has already done a lot to curtail the crisis and should do no more as the measures it has taken have stretched the central bank’s mandate, added the Bundesbank chief - the only ECB policymaker to oppose the new ECB bond purchase plan.
French President Francois Hollande last week raised the possibility of political interference in exchange rate policy when he called for a medium-term target for the euro’s value, a move to counter its recent appreciation.
“The Eurosystem (of euro zone central banks) cannot solve the crisis,” Weidmann said in the text of a speech for delivery in the southern German city of Freiburg.
“Only governments can solve these problems, the central banks cannot,” he added. “In this respect, the discussion about a supposed overvaluation of the euro’s exchange rate simply deviates from the real challenges.”
The euro hit a 15-month peak of $1.3711 on Feb. 1, before easing slightly.
ECB President Mario Draghi said last Thursday the central bank will monitor the economic impact of a strengthening euro, feeding expectations the climbing currency could open the door to an interest rate cut.
But Weidmann said the euro was not overvalued.
“Apart from the fact that, despite the latest appreciation of the euro, the relevant indicators do not signal any serious overvaluation, governments should stick to the established division of roles” he said, urging them to pursue structural reforms while the central bank delivers stable prices.
France insisted on Monday that euro zone finance officials should discuss the rising strength of the euro, but several ministers played down the issue and the G7 was expected to call for “market-determined” exchange rates.
Past experience showed that politically-instigated currency depreciations generally did not lead to lasting gains in competitiveness, said Weidmann.
“Exchange rate developments are of course considered in monetary policy decisions insofar as they influence price developments,” he said.
“But an exchange rate policy with a targetted weakening of the euro would in the end result in higher inflation.”
Weidmann indicated he had no desire for the ECB to take further crisis policy action.
“The second reason why the Eurosystem should not do more is that the Eurosystem has already done a lot to curtail the crisis,” he said. “With these measures, the Eurosystem - like other central banks worldwide - has taken on considerable risks, and it has stretched its mandate widely.”