Merkel Breaks Unwritten Rule Mauling Central Banks
2 Jun 09 | FT
Unconventional monetary policies being pursued by the world’s main central banks could aggravate rather than ease the economic crisis, Angela Merkel, Germany’s chancellor, suggested on Tuesday.
Her surprisingly strong attack on the U.S. Federal Reserve, the Bank of England and the European Central Bank was remarkable coming from a leader who had so far scrupulously adhered to her country’s tradition of never commenting on monetary policy.
“What other central banks have been doing must be reversed. I am very sceptical about the extent of the Fed’s actions and the way the Bank of England has carved its own little line in Europe,” she told a conference in Berlin.
“Even the European Central Bank has somewhat bowed to international pressure with its purchase of covered bonds.” >>>
It is not the first time that Angela Merkel, the German chancellor, has complained about the ultra-loose monetary policy being conducted in the Anglo-Saxon world. But when she attacked the European Central Bank on Tuesday, for its planned purchase of cover bonds – an unconventional way to help financial markets recover – Ms Merkel broke an unwritten ban on German leaders commenting on monetary policy close to home. The message, it seems, is that Berlin is more worried than people had assumed.
The chancellor is not just concerned about the long-term inflationary potential of excessive monetary loosening. Her main concern is that the expansionary fiscal and monetary policy being deployed across the industrial world to fight the economic crisis could be planting the seeds of future crises.
“We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in 10 years’ time,” she said after criticising European, British and U.S. central bankers.
Like Peer Steinbrück, her finance minister, Ms Merkel has urged fellow Europeans to start working on their “exit strategies”.
Governments, she says, should commit now to reducing their budget deficits while central bankers should think about how to re-absorb the liquidity they’re pouring into markets.
“Our most complex task,” she told a conference on Tuesday, “will come once we have overcome the crisis. The question will be … can we return to a path of virtue, as far as public debts are concerned for instance.” >>>