Euron

Stabilitetspakten

Is the euro forever?
Wolfgang Munchau
FT 8/6 2005

Germany's depression
in the 30's

Mats Svegfors



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Why can the ECB not act more like the US Federal Reserve?
Ludwig Erhard, the renowned German economics minister of the postwar era, once made an absurd attempt to explain the Great Depression of the 1930s purely in terms of cartels. It did not occur to him to question Germany’s fiscal and monetary policies at the time.
Wolfgang Munchau, Financial Times, July 4 2005

There are at least four serious problems with the ECB that need to be fixed – inflexibility, a reluctance to correct mistakes, excessive independence and a pathological obsession with fiscal policy.

The second problem – a mistaken focus on credibility – is its reluctance to admit, and correct, mistakes. The choice of an asymmetric inflation target was a mistake. The ECB has defended its absurd “close-to, but below, 2 per cent” target many times, even though there exists no intellectual support in economic literature for it. Changing it to a more sensible symmetric target of 2 per cent, with a margin of error on either side, would have greatly improved its operational flexibility. But it would have involved a loss of face. I wonder whether ECB officials confuse the credibility of their policy with their own personal credibility.

Fourth, by publicly berating governments for their lack of fiscal discipline, the ECB exceeds its already wide-ranging remit. It does not act like a central bank but like the eurozone’s superior economic authority. The obsession with fiscal policy distracts from its own responsibilities.

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