By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Boris Vujčić said on Wednesday that the Iran war and the resulting energy price shock had put the ECB in a difficult position, with upward pressure on prices but a negative impact on growth.

Vujčić, who heads the Croatian National Bank and is due to become ECB vice president on June 1, told Croatia's N1 television that the ECB’s primary objective remained price stability, but that policy also had to take account of the economic cycle.

“If we see that the economy is entering a phase of slowing growth or even recession, it is clear that we will have to lower interest rates,” he said.

The opposite would hold if stronger activity generated inflation pressure, Vujčić said.

“If the economy is growing strongly, if we have pressure on price growth, we will have to raise interest rates,” he said.

The current situation was especially difficult because the Iran war and the external energy price shock had created pressure on prices while also weighing on growth, Vujčić said.

Energy prices had risen strongly, and energy inflation in Croatia was now above 17%, he said.

Policymakers had to balance conflicting forces in order to bring inflation to 2% over the medium term, Vujčić said.

Slower growth could pull inflation down, while higher energy prices could pass through to other prices and push inflation higher, he said.

Vujčić also said ECB policy could not be shaped around national economic conditions.

“We discuss exclusively on the basis of Eurozone data,” he said.

The Governing Council did not discuss data for individual countries such as Germany, France, Croatia or Malta, but rather Eurozone GDP growth, unemployment, inflation, the current account and the balance of payments, Vujčić said.

The sole objective was average Eurozone inflation of 2%, he said.

“There cannot be 21 monetary policies for 21 Eurozone countries,” he said.