By Hans Bentzien
KRONBERG (Dow Jones) – German Finance Wolfgang Schäuble wants to the next meeting the finance ministers and central bank governors of the 20 leading industrial and emerging countries (G20) in Washington for a coordinated exit of major central banks from their ultra loose monetary policy Insert , In presenting an award to him by the Market Economy Foundation Schaeuble said on Friday night in Kronberg near Frankfurt, he had US Treasury Secretary Jack Lew made a proposal.
“I just said to Jack Lew, you should the Federal Reserve encouraging and we should the European Central Bank and the Bank of England to encourage, with the Americans in the convoy cautiously, but slowly ‘get out’” said the Finance Minister and added: “You have to cautiously ‘go out’ among drug addicts.”
Expansive monetary policies of central banks
The central banks of the major industrial countries have further eased monetary policy in recent years under the impact of persistently low inflation and against the backdrop of financial turmoil and gloomy growth forecasts. While the European Central Bank (ECB) interest rates further lowered and its purchase program increased this, the Bank of Japan (BoJ) led surprisingly negative interest rates, and the Fed halved its conditional rate forecast for 2016. In the monetary policy committee of the Bank of England (BoE) are there are now no demands for higher interest rates more.
Economists warn long before the risks associated with the competitive devaluation of the major central banks with itself. And they talk for some time about the need to lead the central bank out of the impasse in which it has brought the decline in commodity prices in pursuing their inflation targets.
Cyrus de la Rubia, the chief economist at HSH Nordbank, said recently: “The ECB is because not get out without help.” His suggestion: “backroom meetings at G20 summits”. Helaba economist Ulf Krauss called for cooperation between the world’s major central banks, because “since joined one to another.”
From his telephone conversation with US Treasury Secretary Lew Schäuble has taken his own words, the impression that “the nervousness about the fragility of the world financial markets will be felt more strongly and the growing realization. that the abundance of liquidity now is more cause than solving the problem. ”
debt is continuously increasing
The level of debt and liquidity in the financial markets was higher than ever before. “When discussing reasonably trustworthy, there is actually only one argument in defense of the mainstream of the current policy and that is:. The exit is even more difficult because I say. This was also known in my time as Minister of Interior in the fight against drugs a bit. this is a bad argument. ” The G20 want to inform on Friday evening on the results of their deliberations.
But apparently the German Finance pursued not only the idea of a coordinated G20 action, he also makes the ECB printing. At the event in Kronberg Schäuble said he wanted to talk next week with ECB President Mario Draghi on how strongly the communicative could meet in Germany increasing criticism of the ECB’s monetary policy.
According to Schäuble, the ECB needs to communicate that the current, “abnormal” monetary policy was only temporary and that all worked to finish it as soon as possible.
As part of its forward guidance, the ECB has, however, recently assured that their interest for a long time are likely to remain at current levels or even could fall further. Your bond purchase program runs until March 2017 and new long-term refinancing operations secure banks loans at zero interest rate (or lower) until 2018.
speculation about “helicopter money”
Currently, there is speculation that the ECB could be used as a last resort so-called “helicopter money” to raise inflation. ECB chief economist Peter Praet assured last, however, that this concept will not even discussed informally in the ECB.
The Governing Council decided on 10 March, the interest rates to be reduced by 5 to 10 basis points, whereas the rate for bank deposits to minus 0.40 percent was reduced. In addition, the monthly volume of bond purchases as of April 1 was increased from 60 to 80 billion euros and extends the limits on purchases of individual issues and individual issuers. Moreover, the ECB wants from a later date to purchase corporate bonds.
The ECB is, according to its mandate in the medium term ensure inflation just under 2 percent, this goal has not seen since around three years. According to their forecasts, it is also likely to take at least another two years before this target range is reached again. In March, inflation was, according to preliminary data minus 0.1 percent.
Schäuble’s remarks come at a time of increasing conflicts in Europe over the adequacy of the ECB monetary policy. Especially the German financial industry criticized the negative interest rates the ECB vigorously. But market participants from other countries make frequent attention to the negative side effects of negative interest rates and securities purchases.
Schäuble makes ECB for AFD success with responsible
The Minister of Finance makes the ECB but apparently also for the success of right-wing populist Alternative for Germany (AfD) in the recent state elections partly responsible. He said: “I have Mario Draghi (…) said:.. Be very proud of 50 percent of earnings of a party that seems to be new and successful in Germany, you can the interpretations of this policy attribute”
Schäuble attacked moreover a key element of the current European financial architecture at: The commitment of the ECB to buy in an emergency and under certain conditions, government bonds of countries whose rates of the opinion ECB therefore are too high because of the financial rules of the impression that they could retire against their will from the euro.
One of the requirements for so-called Outright Monetary Transactions (OMT), which has declared illegal the Federal Constitutional Court, is the existence of an aid program of the euro rescue fund ESM and ESM government bond purchases by the issuer ,
Schäuble said: “With the announcement of OMT I have said, we will never agree to a rescue program with operations in the primary market and thus was his announcement of Mario Draghi. always said, has yet not cost a euro and yet has a good effect, (…) somehow questionable. ”
ECB against meddling from Germany
This week, several ECB officials had held against interference from Germany to the ECB’s monetary policy. ECB chief economist Peter Praet said at the conference “The ECB and it’s Watchers”: “As shot at this institution in this country, is sometimes difficult to bear.”
Support got Praet from his Board colleagues Benoit Coeure who said: “Germany is the country which has made most of central bank independence and rightly here. this independence should be respected. ”
This view is shared by the Federal Treasury in principle. In Kronberg he said: “If you are for the independence of an institution, then one must also accept their decisions if they do not like one Otherwise one is neither democracy-, yet fit for Europe..”
Schäuble had to “Wolfram Angel Award” received on Friday in Kronberg Schlosshotel the liberal economic “Siftung market economy”. He is the seventh award winners and the first one is an active member of a government. Other winners include Bundesbank President Jens Weidmann and Commissioner Monti .
Contact the author hans.bentzien@dowjones.com
DJG / hab / flf
(END) Dow Jones Newswires
April 9, 2016 11:20 ET (15:20 GMT)
Copyright (c) 2016 Dow Jones & amp; Company, Inc. – 11 20 AM EDT 04-09-16
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