The FT reports on the ECB’s seeming conversion to QE: Backlash stirs in Frankfurt.

“Germans are clear about the job of a central banker: to fight inflation, and nothing else … The conservative Frankfurter Allgemeine Zeitung described the turnaround – announced at 3:15am on Monday after a late-night meeting of European finance ministers – as “Americanisation of monetary policy”. Mr Trichet would prefer to describe it as confirming the ECB’s ability to react quickly.

Will they stop complaining about ‘Americanisation’ in Europe? They could do with an ‘Americanisation’ of their growth rates, soon.  And when will the Germans get over Weimar inflation?  Perhaps if the French start eyeing up the Ruhr’s telegraph poles, they may have a reason to worry.  But in demand-deficient Europe, inflation is surely a long way from being their big problem.

Wolfgang Munchau seems to join in, writing History has warned about slippery slope of monetisation

“The total amount of central bank money should be thus unaffected. However, we should not for a minute be fooled into thinking that such sterilisation is really neutral. If the ECB buys Greek bonds, which it did last week, and if, as seems likely, Greece will eventually default on part of its obligations, the ECB will take a very large loss. This shortfall would either have to financed through fiscal measures – a big increase in the debt of the ECB’s shareholders, notably Germany – or through the printing presses.”

Oh, people hate slippery slopes.  They so prefer gradually subsiding into low-growth irrelevance.  My view is strongly that if fiscal stances can’t be expansionary, we must get more out of monetary policy.  Read Credit Where It’s Due, it’s still what I think. Europe needs to expect strong nominal growth, otherwise all these impossible fiscal situations really will turn out that way.

Another profound enemy of monetary looseness is John Taylor:

most worrisome for the euro, and the likely reason for its remarkable reversal in the currency markets on day one, is the agreement by the European Central Bank to buy the debt of the countries with troublesome debt burdens, just days after it said it would not engage in such purchases. This agreement raises questions about the independence of the ECB …

and once again the US is set us as a bad example:

You can imagine the phone conversations between Brussels and Frankfurt. “The Fed helped the US Treasury conduct its bail-out policy during their financial crisis; why can’t the ECB help us in our bail-out?” Even the Fed’s “whatever it takes” mantra was being repeated in Brussels last weekend. In my view we are definitely seeing contagion, but it is a contagion of deviations from the independent and credible monetary policy that has served us well in the past

I just don’t get how all these people think the strength and credibility of the Euro, right now, is so much more important than the future levels of nominal growth.  I must be missing something. However, I can recognise the criticism of my support of this policy of buying national bonds, via Marginal Revolution*

“Finance ministers in the eurozone might argue that they acted to save the euro, but in reality they acted to save national bond markets – and the euro is the fall guy,” says Steve Barrow at Standard Bank.

If lots of money is printed, does this mean the euro being the fall guy?  But why is that not the case for the dollar? How unfair ..

*if you’re interested in Tyler Cowen and his uncanny genius, read this article


One thought on “Now is not a time for uber-German monetary policy

  1. Europhiles -with the French leading the pack- have always bet on the “Europeanisation of Germany.”
    That’s what happened during decades, yet with a growing acceptance off the German social market (and Christian Democrat) model.

    Now the times are changing, and the Greek and PIGS problems have turned into an opportunity to shift towards the “Germanisation of Europe”.
    I faced an angry backlash and reactions ranging from scepticism to naivety when I wrote an op-ed about “Deutschland ûber Europa recently -read on Read again here about the German hidden agenda (and check out a selection of links and articles about the German attitudes and goals on

    The ECB is trying to take advantage of the ongoing crisis to impose the Franco-German cocktail made up of tight monetary policy and increased tax harmonisation. Economic and social costs will be heavy. But they -who are “they”? Not the faceless markets this time but the European bureaucrats and political elites who want to save their faces and necks. As a result, Euroland might turn -it has turned already- into a huge market for German products ruled with German economic policies and “protected” with French-leaning social and tax reforms, all governed by a super-bureaucracy.

    What an outlook!
    How right Britain was not to join the eurofray (I mean zone).

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