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Axel Weber Sees 'Genuine Risk' of Higher Inflation

The European Central Bank's warning that a rate increase is possible next month is the correct answer to rising inflation risks, Axel Weber, the head of the Bundesbank, told CNBC Tuesday.

Torsten Silz | AFP | Getty Images

Some market watchers have criticized ECB president Jean-Claude Trichet for warning that the bank may raise the rate, saying that this would hurt the already weaker periphery economies in the euro zone.

"I think there is a genuine risk that inflation will stay higher than is advisable or tolerable for some period of time," Weber told CNBC in an interview. "I think the fact that the ECB has signaled strong vigilance is the right answer to the recent inflation developments."

Weber, who resigned from his position as head of Bundesbank and therefore will not be a candidate in the race for the ECB presidency, insisted that the central bank's primary mandate is fighting inflation.

"We will deliver price stability and have done that in the past and there is no doubt the euro system will deliver price stability according to its mandate," he said.

However, fiscal policy makers "need to do their homework" to bring their budgets back in line with the euro zone's criteria, cutting debt and the deficits.

Weber said last month that his hawkish stance and his opposition to non-orthodox measures taken by the ECB to fight the crisis were among the reasons that led to his resignation, which takes effect at the end of April.

"I don't have to repeat that every month, but truly what I said is that some of these non-standard measures - not just bund purchases - have long-term stability risks," he said.

"If you step closer to fiscal policy in a crisis situation, you need to have an exit strategy to put some distance between monetary policy and fiscal policy in more normal times," Weber added.

"As times are normalizing, we need to find that new distance and I think the ECB has made perfectly clear this is the first step in that direction that we will find a new distance to fiscal policy in Europe because it's not our responsibility," he said.

Contact Europe: Economy

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