Fighting inflation in times when commodity prices increase is part of the future challenges the European Central Bank (ECB) will have to face, Gertrude Tumpel-Gugerell, executive board member of the ECB, said in an exclusive interview with CNBC Friday.
“I think monetary policy can react in two different ways,” Tumpel-Gugerell said. “The first few years of the existence of the euro and the European Central Bank, we were fighting inflation. Then the last few years, we were fighting recession.”
European central bankers have to face both challenges at the same time as commodity prices are skyrocketingand concerns about sovereign debt in euro zone peripheral countries are intensifying.
“I think challenges for the future will be to preserve price stability,” Tumpel-Gugerell, said. “This is always a challenge for central bankers, especially in times of commodity price increases. But it’s also a challenge to coordinate fiscal policy at the European level.”
In order to deal with both inflation and recession, the ECB does have instruments available, and if needed is ready to look for new ones, Tumpel-Gugerell explained.
“We could start off the purchase program of government securities,” Tumpel-Gugerell said, “and therefore we always had to distinguish what is the concept, what are difficulties in implementation… in day to day policy formulation so if we distinguish this well, we could be confident.”
Tumpel-Gugerell added that she never feared for the future of the euro, “because we found the instrument which could help to intervene in the market, where we could stabilize the market and I think this was a very important moment.”
The ECB is not fighting alone the battle against recession, she added.
“The countries have taken action. Greece has brought down the deficit; I think they are on the way,” Tumpel-Gugerell said, “they still have to do a lot, I think this is what we are monitoring, what we are assessing, and discussing with them.”