Don't Worry

Former ECB Chief Economist Issing Says Deflation Fears Are Misplaced

Former ECB Chief Economist Otmar Issing. Source: Bloomberg
Otmar Issing was the ECB's first chief economist.

Otmar Issing had a decisive influence on the European Central Bank during its developmental phase. Even today, the bank’s former chief economist closely observes the activities in the ECB’s Eurotower in Frankfurt ― including the current debate about deflation. Handelsblatt reporter Dorit Hess interviewed Issing recently.

Handelsblatt: Mr. Issing, the fact that today in Europe we have a quantitative target value for stable prices is essentially due to your efforts. How did this definition arise?

In 1998 during the phase of setting up the European Central Bank, we were confronted, while developing our strategy for monetary policy, with the question as to whether we would simply issue a general definition of price stability, as the German Central Bank had done, or whether we would determine a target value. I was in favor of a clear definition that, right from the beginning, would allow no doubts to arise with regard to a stable currency. I was able to convince my colleagues, and we initially defined values under 2 percent as stable prices.

Today the ECB speaks of stable prices when they are situated “under but near 2 percent.” Why is that?

In 2003 when reworking our strategy for monetary policy, we modified the definition slightly. We were responding in this way to the criticism made by the European Parliament and others that we had previously given consideration only to the danger of inflation, but not to that of deflation.

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