DAVOS, Switzerland (Reuters) - German Finance Minister Wolfgang Schaeuble described as “nonsense” EU Economic and Monetary Affairs Commission Olli Rehn’s view that prolonged low inflation in the euro zone would make the necessary economic rebalancing harder to achieve.
In an interview with Reuters at the World Economic Forum in Davos on Saturday, Schaeuble said he would distance himself from Finland’s Rehn if that were his opinion as an EU Commissioner.
“No, I don’t share his view because that would mean that Europe only functions on the basis of instability and inflation. That is nonsense,” Schaeuble said, referring to Rehn’s comments.
“With Olli Rehn I am no longer sure whether he is still talking as a Commissioner or already as an election campaigner. If he were speaking as commissioner, I would clearly have to distance myself. If he is talking nonsense as an election campaigner, I have to say: ‘It’s better to vote for my party’.”
Rehn has said he plans to run for the European Parliament in May and hopes to be a top candidate for the Liberal ALDE group. Schaeuble’s Christian Democrats are in the European People’s Party (EPP), the largest bloc in the parliament. ALDE, the third-largest group, will decide its nominee in February.
Rehn told Reuters Insider Television in Davos on Friday that inflation, which stands at 0.8 percent now, needed to be closer to the European Central Bank’s target of just below 2 percent to permit the necessary adjustment.
“A lengthy period of low inflation can make it more difficult if this low inflation is caused by core Europe inflation being very low,” Rehn said.
“In order to succeed in the rebalancing process of the whole euro zone, average inflation should be close to the 2 percent goal that the ECB has set,” the commissioner said.
Schaeuble said he was optimistic that emerging economies would resolve their problems after a selloff on Friday, when Argentina said it would relax currency controls it had long defended as essential amid high inflation and a tumbling peso. Turkey’s lira hit a record low despite an estimated $3 billion of intervention by its central bank the previous day.
“I think everybody involved in the world economy knew that we have a few problems in several emerging economies,” he said.
”They sometimes have different reasons. Argentina is different from Indonesia, and Turkey has a few special reasons which we all know, but I am confident that they will all solve that, they will succeed.
“Also it shows how important it is that we no longer concentrate so much on monetary policy for the world economy’s development as we have done in previous years, but that the Federal Reserve’s tapering will be continued cautiously, yet continuously.”
Turning to the euro zone, Schaeuble said France was tackling the reforms needed and Italy’s Prime Minister Enrico Letta as well as his predecessor Mario Monti had taken important steps in the right direction.
“Regarding France I have always said France will do what is necessary, and I was right. I think it’s very good what the President has now decided, and I am also sure that Italy will do what is necessary.”
Schaeuble nevertheless had public advice for Italy, saying it needs to reform its electoral system.
”Italy has a political problem, we know that. Italy also needs to reform its election system, and once the political instability is overcome, and they have made good progress, then Italy will be more able to reach the necessary economic and financial policy decisions.
”Italy has already done a lot, especially during Prime Minister Monti’s term. Now Letta is doing what he can in this transitional phase.
Schaeuble also praised his Italian counterpart, Fabrizio Saccomanni, saying: “Saccomanni is an excellent finance minister. I am not concerned about Italy in the long term.”
On the domestic front, Schaeuble said he was confident his federal government would have a balanced budget in 2015 for the first time since 1969 and a structurally balanced budget in 2014 even though one-off factors will mean it will have new net borrowing of 8.5 billion euros this year.
“There are always risks but we are determined and that’s what we have agreed on,” he said. “This year we will still have a certain net national debt but we will no longer have a structural deficit. Next year we want to manage without any new borrowing. That’s ambitious but we will succeed.”
Writing by Erik Kirschbaum; Editing by Hugh Lawson