Why listen to Merkel?
Yesterday Angela Merkel launched a stinging attack on the Fed and Bank of England.
“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.
This reminds me of Finance Minister Peer Steinbruck’s attack on the Government’s policies as ‘crass Keynesianism’.
Obviously both are breaking long standing conventions on not commenting on the policies of others, and in the case of Merkel a very long standing convention not to comment on monetary policy but this is beside the point.
On what basis do they presume the right to criticize others?
The Germany Economy is shrinking faster than either UK or USA.
Unemployment has just hit 8.2%.
Inflation has fallen to 0.0% and deflation will set in as early as next month.
Whilst the Fed and BOE have been proactive in responding to the crisis, the ECB raised rates as recently as July last year.
The German economy is as unbalanced as our own, with tepid domestic demand, too high savings and a massive over reliance on exports. The Merkel Government has made no effort to address this.
The German banks, according to the IMF, have more write downs to come than either the UK or US banking sectors.
The first bank to fail in the West was not Northern Rock but German IKB three months earlier.
Debt to GDP is expected to hit 80% by 2010 – not far from the UK.
What planet is Merkel living on? And why is anyone listening to her?
And for the second time in three weeks support from Lombard Street.
SUMMARY: Mrs Merkel and the German élite are divorced from the realities of the global economy, as well as flouting received economic wisdom from Keynes to Friedman. Their budget policies will prolong dangerous global and European imbalances, and biting the (deficit) US/UK hand that feeds them could damage free trade and German incomes.