TOKYO (Reuters) - Euro zone countries with fiscal space, such as Germany, should use it to promote growth in a region hurt by the global trade war, European Central Bank policymaker Francois Villeroy de Galhau said on Thursday.
The escalation in trade disputes has slowed global trade and the effects are “very acute” in export-reliant Germany, said Villeroy, who is also governor of the French central bank.
Euro zone public debt is lower than the debt of the United States and Japan, so the region can deploy more fiscal stimulus than it’s been using, he said.
“Countries with fiscal space should use it quickly, even more so when they suffer an asymmetric shock like Germany,” Villeroy told the Europlace international forum in Tokyo. “Those with high public debt should make their public finances more growth-friendly.”
Under its new president, Christine Lagarde, the ECB can conduct a strategic review of its policies, including the relationship between monetary and macro-prudential policies, Villeroy said.
A “soft coordination” between the two may be “more promising” than the conventional approach of separating them, Villeroy said, since macro-prudential tools have limitations in addressing increasing financial stability concerns.
The review should also make the ECB’s inflation target clearer, Villeroy said. The ECB targets inflation below, but close to, 2% over the medium term.
“About the definition of our primary objective of price stability, we have to clarify in particular our various time horizons as well as our commitment to symmetry,” Villeroy said.
Euro zone inflation has for years fallen short of the target. Symmetry implies the same tolerance for undershooting as overshooting the target.
In both speeches, Villeroy backed the post-financial-crisis bank regulation known as Basel III, describing it as a “fair and reasonable compromise” among the United States, Japan and Europe.
Reporting by Leika Kihara; additional reporting by Daniel Leussink, Leigh Thomas in Paris; editing by Chris Gallagher, Larry King