November 8, 2017 / 10:20 AM / a year ago

German advisers want tighter ECB policy, longer Brexit talks

BERLIN (Reuters) - The European Central Bank should wind down its asset purchases quickly and publish a strategy for normalizing its expansive monetary policy, a panel of economic advisers to the German government said on Wednesday.

Christoph M. Schmidt, President of the Institute for Economic Research hands over a report of the German Council of Economic Expert's (SVR) (Sachverstaendigenrat), also known as 'the five wise men', to German Chancellor Angela Merkel at the Chancellery in Berlin, Germany, November 4, 2017. REUTERS/Hannibal Hanschke

In their annual report, the five-member German Council of Economic Experts who advise the German government on economic policy said the ECB’s expansive monetary policy risks jeopardizing financial stability and creating market volatility.

Germans have led criticism of the ECB’s bond-buying program, which was introduced three years ago to depress borrowing costs and reignite growth in the euro zone’s heavily indebted southern periphery.

“In view of macro economic developments, the ECB should quickly reduce the purchases and end them earlier,” group said in its report.

Last month, the ECB took a step towards weaning the euro zone off loose money but promised years of stimulus and even left the door open to backtracking. [nL8N1N132C]

Market interest rate developments “suggest the ECB should significantly tighten its monetary policy to adapt to macro economic developments”, the group said, pressing the central bank to urgently publish a strategy for normalizing policy.

The German economy, Europe’s largest, was heading for a “boom phase”, the group added. They raised their forecasts for German economic growth to 2.0 percent this year and 2.2 percent next year.

However, the group identified a disorderly, so-called ‘hard Brexit’ as one risk that would hit Britain hardest but also create upheaval in the remaining 27 European Union member countries.

“The Council of Experts believes a one-off extension (of Brexit negotiations) that largely preserves the status quo would be sensible,” the group added.

With the German economy in robust shape, the wise men urged the next government to tackle the looming challenges of demographic change and digitization rather than focusing on social welfare.

Reporting by Paul Carrel and Joseph Nasr Editing by Jeremy Gaunt

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