(Bloomberg) — The German government must adopt more cautious fiscal policies that complement the European Central Bank’s efforts to tackle inflation in order to help the economy, the country’s deputy finance minister, Florian Toncar, told Bloomberg Television.
(Bloomberg) — The German government must adopt more cautious fiscal policies that complement the European Central Bank’s efforts to tackle inflation in order to help the economy, the country’s deputy finance minister, Florian Toncar, told Bloomberg Television.
This means no more debt, consolidating the budget and reducing the rate of borrowing to gross domestic product, he said in an interview in Berlin on Thursday.
“The sooner we get inflation under control, the better for the economy, for the economic recovery,” Toncar said. “We need to create economic stimulus without fiscal implications: less bureaucracy, quicker planning procedures, addressing the issue of skilled workforce.”
The ECB is widely expected to raise interest rates again on May 4, though the pace of tightening remains in doubt. As well as price pressures, policymakers are assessing the fallout from the recent financial-sector stress before deciding on whether to opt for a quarter- or half-point step
Toncar said he doesn’t believe there is an immediate risk to financial stability, adding that the Swiss government-brokered takeover of Credit Suisse Group AG by UBS Group AG was handled well.
‘High Pressure’
“Switzerland was under high pressure, it was a global issue, they in effect found a solution over almost only a weekend, which proved to be successful,” he said. “I have high respect for what the politicians, what the regulators in Switzerland have achieved.”
He noted that the European Union would have handled one key element of the deal differently: the direct shareholders would have been wiped out ahead of the additional-tier 1 debtholders. The Swiss move defied general convention.
Read more: Credit Suisse AT1 Holders’ Wipeout Challenged in Swiss Court
The creation of a bank with assets of about twice the size of Swiss annual economic output has raised the question of whether lenders can become “too big to bail.” Should new trouble arise, Switzerland, in all likelihood, wouldn’t be able to rescue it on its own.
“Size is not an asset as such,” Toncar said. “Quite the opposite, of course, size also increases systemic risk, and therefore any solution which increases the size of banks requires particularly close attention of the regulators.”
Germany emerged mostly unscathed following the collapse of banks in the US and the Swiss deal. Still, a market attack in late March on Deutsche Bank AG in the midst of the crisis has reminded politicians that additional safeguards may be required.
Toncar said it was important to have banks that are competitive, stable and profitable.
As for the non-bank part of the financial market, the so-called shadow banking sector, Toncar said European regulators would be “well advised to take a deeper look into the liquidity management and stability” of funds of various types, some of which have high market shares in certain segments.
The IMF warned last week that it’s too soon to sound the all-clear from the turmoil that’s shaken the world financial system, saying the banking breakdowns will likely be a drag on credit and global economic expansion.
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