Ottmar Issing, who has Irish links, makes EU stability his life mission, writes Marc Coleman

No Irish person has yet served on the executive board of the European Central Bank (ECB). As if to compensate, Germany's board member and chief economist Ottmar Issing, comes from a town with one of the strongest Irish connections in continental Europe.

Some 1,300 years ago, three Irish saints, Killian, Colman and Totnan, were martyred for spreading Christianity in Issing's home town of Würzburg. A huge cathedral named after St Killian towers over the Bavarian town, which boasts the best wines and scenery in Germany.

"Irish people get a much warmer welcome in Würzburg these days," Issing chuckles.

We are speaking not in Würzburg, but about 100 miles northwest, in a 36-floor skyscraper that houses the ECB's headquarters in Frankfurt. From his office on the 34th floor, Issing can look back on a 40-year career that led to the most important job in monetary economics in Europe.

After over two decades as a professor in the universities of Erlangen-Nürnberg and Würzburg, Issing traded academia for the world of central banks, joining the Bundesbank in 1990. At the time, the German central bank was the voice of reason in Europe and defender of the strong reputation of the deutschmark. In 1998, he became a member of the executive board of the nascent ECB and its first chief economist as Germany tried to ensure that the euro-zone's new currency would retain the integrity of the D-mark.

The only original board member still in office, Issing has nurtured the ECB's present orthodoxy for eight years. Like fellow Bavarian Pope Benedict XVI, he was born to defend a "faith". His retirement may be approaching, but Issing remains a vigorous defender of his own monetary credo.

His responses to my questions are gracious, but firm and decisive. Asked whether the governing council is hanging on for German recovery before it continues to tighten policy, he says the ECB conducts monetary policy for the euro area as a whole. "At the same time, Germany is the largest economy and what goes on there has implications for the euro area."

He notes that Germany's relative economic torpor in recent years means the share of the German economy in the euro area has declined.

"It's now below 30 per cent. We welcome that economic news from Germany has substantially improved but we assess always the development of the euro area as a whole when conducting our monetary policy."

As in matters of faith, with monetary policy one sometimes has to suffer but the question is how much. In its tightening phase, between April 1999 and October 2000, the ECB raised rates by two and a quarter percentage points. Is that a benchmark for the worst the ECB might do this time? "Not at all, there is no such benchmark in either direction, neither upward nor downward. We decide always in line with our objective to maintain price stability over the medium term. No one can have any clear notion for the future how this can be achieved by a certain level of interest rates.

"Neither is there a fixed schedule. It all depends on developments in the economic situation and our assessment of risks to price stability."

Faith should also be comforting. I propose that with globalisation driving down manufactured goods prices worldwide, the ECB needn't be as tough as back then.

"Globalisation works of course in the direction of stronger competition from low-income countries, so this has exerted downward pressure on prices and price setting power from companies. At the same time, it is also reflected in this skyrocketing oil price - the other side of the same phenomenon. So there is no simple answer to the question of the effect of globalisation on price developments."

In recent months, a touchier subject for the ECB has been the timing of rate increases. The day before our interview, Jean-Claude Trichet said markets were wrong to presume that a rate rise in May was inevitable. Can the ECB at least put a time limit on how long a tightening phase will last?

"No, not at all. I would not subscribe to any notion of a fixed term of a cycle. This is not our approach. We assess the situation and in today's globalised world, you cannot rely on any structures that you have seen in the past. Our policy is forward looking. The experience of the past is a relevant factor. It's interesting to compare present developments with past developments but not in the way that you derive from that any kind of schedule."

Mechanistic formulae for raising or lowering rates in response to an economic cycle are too simplistic in an ever more complicated world, and one of the complicating factors is asset prices. Is the ECB worried that asset price growth - house prices to you and me - might lead to inflation?

"It's a very complex phenomenon. In our Monthly Bulletin Commentary on asset price developments, we have referred to the fact that we see the risk of overheating in some markets and probably now in general in the euro area as a whole. But this development is very expressed in a few euro area countries which are well known."

Is he concerned about the growth in housing loans in the euro area? "We have seen strong increases in loans to private households for house purchases. This has to be seen in the context of overheating in some markets. In general, a strong development in money and credit is a factor which we identify as a risk to future price stability in the euro area as a whole."

This reminds me to ask Issing what he thinks of the Irish economy. "It's remarkable how the Irish have reduced the public debt ratio to present low levels. It's an example of how fiscal consolidation, structural reforms and sound macroeconomic policies can deliver results that are astounding.

"It's also a good point to mention that flexibility in the labour market is one of the major reasons behind this success story. So far it is an example for good performance. We need these examples in the context of the Lisbon process. At the same time, there is always a risk that, over time, you become complacent. There is a risk of overheating. This is the other side. I am confident that the Irish will be able to master the problem but one must never be complacent."

Issing turned 70 on March 27th and retires on May 31st. He has enjoyed the challenge of the ECB, but his thoughts are now turning back to the spires of Würzburg, its Irish heritage and its local wines.

"St Killian is present in the daily life of my home town and my home region. The corpses of the three missionaries, Killian, Colman and Totnan, are buried in Würzburg.

"The main cathedral is named after him and once a year in July, we have a big procession to mark his memory. St Killian is also the patron of local wine growers and there is a famous song in his memory."

As he retires, Issing can reflect on his own "missionary" life which helped to found a faith in the euro which, in spite of its critics, is still alive and well.