BERLIN Oct 11 Central banks should be
independent in setting monetary policy but they should also be
tasked with monitoring financial market stability under
political supervision, the International Monetary Fund's (IMF)
chief economist said.
Olivier Blanchard also told Handelsblatt newspaper's Friday
edition that Germany should take on a stronger role in Europe
and needed to invest more rather than focus on saving.
"If there is one lesson to be learned from the crisis, it
must be: it's not enough to keep an eye on monetary stability.
We must also look at the stability of the financial system,"
Blanchard was quoted as saying.
"(Central bank) independence should be tiered. Classical
monetary policy must remain independent. The control of the
financial markets by the central bank, however, should be put
under some kind of political supervision."
Blanchard reiterated his call to raise inflation targets to
4 percent from the current roughly 2 percent, saying that would
create space to cut interest rates during crises. The European
Central Bank (ECB) should consider ways to lower credit costs
for small and medium enterprises.
Blanchard said he was concerned that European countries
would drag their feet on structural reforms as confidence grew
that the worst was over in the euro zone sovereign debt crisis.
"You hear it more and more: 'we have reformed enough, now we
are seeing results. Spare us new demands'. That worries me," he
said. "We need further structural reforms if we want to reach an
acceptable level of employment. Even Germany, which is not going
through a jobs crisis, is not exactly growing impressively."
He said Germany, the euro zone's largest economy, should see
Europe more as an insurance scheme than a transfer system and
many wished Germany would take a stronger role in Europe.
"Sometimes the fire is at your neighbour's house, sometimes
it's in your own house. I wish the focus was more on the
question: how can we strengthen the euro?" Blanchard said,
adding that meant banking union should be completed.
Blanchard did not rule out further debt relief for Greece,
the country where the euro zone crisis first broke out.
"The IMF has agreed with the Europeans that the debt level
will be below 110 percent (of GDP) in 2022," he said. "We will
have to see how we will get there."
IMF chief Christine Lagarde, speaking at the IMF and World
Bank's autumn meeting on Thursday, said she had "no doubt"
European authorities would stick by their commitments to give
Greece additional debt relief if it meets fiscal targets set
under its bailout programme.