Hands Off The ECB

Deep seated as my criticisms are of the dithering and lack of imagination and vision over at the ECB, the situation would not be improved by giving national governments more say. I have only one response then to M de Vil-lepin: hands off.

Mr de Villepin suggests the 12 finance ministers of the eurozone should open a ?dialogue? with the European Central Bank about how to deal with low growth and high unemployment by defining a common economic government. Although he stresses the eurogroup must respect the ECB’s independence, his remarks are bound to be seen as a further sign of European politicians’ desire to have a greater say over monetary policy.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

3 thoughts on “Hands Off The ECB

  1. Did AA Milne have an ?narque in mind? As I?m sure you know, Edward, Rotten Rabbit is unpopular in France, unlike Sarkozy who is admired even on the left. Some fine invective concerning Rabbit?s appointment in the aftermath of the referendum here:
    http://www.u-blog.net/anyhow/note/328

    ?Un diplomate de carri?re qui m?prise les lois de l’?conomie pour redresser l’entreprise France? Un po?te de l’arrogance gauloise pour convaincre les autres Europ?ens qu’un avenir commun est encore possible?

    Perhaps de Villepin will indeed try to make the ECB more ?answerable? to his views on the exchange rate ? and to those of Clement, Germany?s Minister of Economics and Labour:

    Most of the gain in international competitiveness for the German economy from a moderate development in wages and committed structural reforms could be eliminated again by a strong appreciation of the euro. It is crucial permanently to remove the causes of the weakness of the dollar, and the Eurozone must not be forced to bear the consequences alone. The internal dynamic in the Eurozone itself must also be greatly strengthened, and for this structural reforms and a macroeconomic policy oriented to growth and stability must be mutually supplementing. If so, they will not only contribute to more growth and employment, but also improve the resistance of the member states of the Eurozone to many external disruptions. In this interaction of forces monetary policy bears a heavy responsibility in utilising its scope.

    From the ministry?s ?Annual Economic Report for 2005?
    http://www.bmwa.bund.de/Redaktion/Inhalte/Pdf/Publikationen/br-annual-economic-report-for-2005-englisch,property=pdf,rwb=true.pdf

    and his latest proclamation, reported in the Telegraph (don?t tread in the spin)
    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/06/03/cneuro03.xml

    But Trichet actually believes Euro interest rates should go up, since he is worries that the rising oil price may fuel inflation. The current slide has put this battle off a bit, but there are interesting times ahead.

  2. Does anyone have a view on the reaction in Germany to this kind of talk? The Maastricht settlement on EMU isn’t exactly popular there, of course, but until recently fire has been concentrated on the fiscal constraints (originally imposed at German insistence, lest we forget). Maastricht was sold to the Germans on the basis that it recreated the Bundesbank model on a continental scale. A stability-focused monetary policy targeting inflation via an independent central bank insulated by statute from political influence. Has recent experience discredited this model in Germany? Does the French alternative of an activist monetary policy under political direction have any takers?

    Frankly, I’d be surprised if it did.
    But, like they say, these are interesting times. Strange things are happening as we watch.

    (Thanks for the u-blog link, John. Great fun.)

  3. “Does anyone have a view on the reaction in Germany to this kind of talk?”

    Well that Hans Werner Sinn guy I linked to the other day on Afoe does have an interesting argument. Most people, as you know reject the idea that Germany has suffered from a deeply ineffective monetary policy. It could have been better, but not that much better. However….

    Germany did traditionally benefit from having lower interest rates than most of the rest of the euro group. With the euro everyone has been enjoying cheap rates (which is not necessarily good, as I will argue elsewhere one day), but this means that German enterprises feel that they have lost some competitive advantage that their access to ‘good housekeeping’ cheap money gave them inside Europe. So if there is a debate one day about whether the euro has been a good thing for Germany or not, I imagine this may be one of the issues.

    As you both say, times seem to be getting interesting.