The head of Germany's Ifo economic institute has warned of a return of the euro crisis in a newspaper interview and said the ECB should start to roll back its interest rate policy. As Sonia Legg reports, it comes after ECB President Mario Draghi put off any policy changes until at least next month.
Mario Draghi is used to criticism from Germany over his monetary policy. His zero interest rates aren't good for savers and Germans have a reputation for being good at that. Many expected to see the start of an ECB policy change this week. The fact that they didn't brought stinging criticism from the Ifo economic institute. Its head Clemens Fuest warned of a return to the euro crisis. He told a newspaper there'd been a noticeable recovery in the euro zone, inflation rates we on the up as were bonds, shares and property prices. Some say he has a point. (SOUNDBITE) (English) JEREMY STRETCH, HEAD OF STRATEGY, CIBC "Once we get back to a more normal monetary policy then it may well be the case that some of those strains within the system, whether it be in terms of the banking sector in terms of capitalization or whether it be in terms of excessive holdings of sovereign debt, may well come back to pass." The recent rise in the value of the euro and its restraining impact on inflation was a key reason for no ECB move this month. (SOUNDBITE) (English) ECB PRESIDENT, MARIO DRAGHI, SAYING: "Downside risks continue to exist, primarily relating to global factors and developments in foreign exchange markets." But that strength is relative. (SOUNDBITE) (English) JEREMY STRETCH, HEAD OF STRATEGY, CIBC "On aggregate we would argue that a fair value level for the euro against the U.S. dollar is probably in the region of 128 to 130. So we're still substantially below that so the euro is still competitive or trading on the easy side of competitive." The euro is hurting German exporters - latest German data shows imports grew far faster in July. But the ECB did win support from an unexpected source. German central bank governor Jens Weidmann backed Draghi's decision to put off a move until October.