The Bundesbank against the World: German Central Bank Opposes Euro Strategy

[sysop]

The European Central Bank plans to resume buying the bonds of crisis-hit countries on a large scale. Jens Weidmann, head of the German central bank, is firmly opposed to the idea, arguing that it will lead to inflation and lessen pressure on governments to carry out reforms. But he is becoming increasingly isolated within the ECB and in the political world.

http://www.spiegel.de/international/...852237,00.html

[marcschi]

Thank God, some things still have a veto

[alfredmifsud]

The alternative to Draghi's plan is a break up of the Euro and of the EU itself. Democracies in distressed countries cannot survive of the savings made from austerity are spent in higher interest rates demanded by financial markets fearing a euro break up.

The sacred truth is that the Euro is a poltical project, a political project that should have used the crisis to pass on to the next phase of integration by creating banking union ( including a common regulator and common deposit insurance scheme) and leading to a fiscal union which eventually leads to way to pooled borrowing.

It is up to polticians to use the crisis to deliver the next face of integration. But the ECB has an obligation to gain time for countries to workout their adjustment programs without continual financial crisis.

If the people in distressed countries after several round of austerity realise that their sacrifices are only financing higher debt servicing costs, they will elect demagogues who will scrap democracies and lead us back to the future of the 1930.

Merkel seems to understand this. Draghi seems to understand this. Only BuBa does not get it. God forbid if we had Weidmann at the ECB.

There is no guarantee that Draghi's plan will succeed. But there is a guarnatee that without such plan we will surely fail. In the Euro system an active monetary policy has temporarily to fill the poltical impossibility to use fiscal policy to avoid deflation. Fearing inflation is like fighting Don Quixote 's windmills.

[Inglenda2]

For once the German Bank is showing more common sense than all the European politcians put together. Under the current conditions, the best thing Germany could do is leave the Eurozone itself, return to the DM and let the others get on with the mess they have caused.

[Aworldcityzen]

Using the drug analogy could lead to new levers to takle the debt issue.
Who are the debt addicts: any politic leader in charge of a public budget, whatever the level. They deserve the same treatments than drug addicts: control and desintoxication cures.
What are the toxic products: any financial product or set-up attracting political leaders for easy virtual money. Toxic financial products should be banned worlwide.
Who are the debt dealers: all the financial actors creating those toxic products promoting more virtual money creation and benefiting from real current cash at the expenses of citizens and societies: the more virtual money flowing, the more cash commissions and possible speculations with no benefit in real economies.
For the good health and stability of our societies and economies, debt addictions should be fought the same way we are fighting against drug addictions

[BTraven]

Originally Posted by Inglenda2

For once the German Bank is showing more common sense than all the European politcians put together. Under the current conditions, the best thing Germany could do is leave the Eurozone itself, return to the DM and let the others get on with the mess they have caused.

Leaving the Euro-zone would only make sense for those countries which suffering from the austerity policy mostly at the moment. This could happen very soon since many big companies, according to the “Spiegel”, have problems to get money from the banks. The situation is so severe that they are forced to accept offers from dubious lenders. We have already learnt that the fate of ordinary people is not so important. Now, however, cooperate groups are affected, too. It will be interesting to see how politician will deal with it.

[alfredmifsud]

Originally Posted by Inglenda2

For once the German Bank is showing more common sense than all the European politcians put together. Under the current conditions, the best thing Germany could do is leave the Eurozone itself, return to the DM and let the others get on with the mess they have caused.

Germany leaving the Euro and returning to the Deutsche Mark could be a very powerful solution to the Euro problem as Germany is causing as much instability to the system from the virtuous side as Greece is from the vicious side. Both Greece and Germany should leave the Euro and the reamining 15 countries would make a more optimum single currency area.

But be careful what you wish for. Germany will undergo a sharp adjustment shock as the Deutsche Marks would instantaly and sharply appreciate, causing many German factories to become instantly uncompetitive, leading to unemployment and relocation of investments. It's a way how to remove strategic disequilibria and if Germany is ready for it, so should be the rest.