Germany Attacks US Economic Policy
November 11, 2010 Germany has put itself on a collision course with the US over the global economy, after its finance minister launched an extraordinary attack on policies being pursued in Washington.
Wolfgang Schuble accused the US of undermining its policymaking credibility, increasing global economic uncertainty and of hypocrisy over exchange rates. The US economic growth model was in a deep crisis, he also warned over the weekend.
His comments set the stage for acrimonious talks at the G20 summit in Seoul starting on Thursday. Germany has been irritated at US proposals that it should make more effort to reduce its current account surplus. But Berlin policymakers were also alarmed by last weeks US Federal Reserve decision to pump an extra $600bn into financial markets in an attempt to revive US economic prospects through quantitative easing.
On Friday, Mr Schuble described US policy as clueless. In a Der Spiegel magazine interview, to be published on Monday, he expanded his criticism further, saying decisions taken by the Fed increase the insecurity in the world economy.
They make a reasonable balance between industrial and developing countries more difficult and they undermine the credibility of the US in finance policymaking.
Mr Schuble added: It is not consistent when the Americans accuse the Chinese of exchange rate manipulation and then steer the dollar exchange rate artificially lower with the help of their [central banks] printing press.
Germanys export success, he argued, was not based on exchange rate tricks but on increased competitiveness. In contrast, the American growth model is in a deep crisis. The Americans have lived for too long on credit, overblown their financial sector and neglected their industrial base. There are lots of reasons for the US problems German export surpluses are not part of them.
There was also considerable doubt as to whether pumping endless money into markets made sense, Mr Schuble argued. The US economy is not lacking liquidity.
On the future of the eurozone, Mr Schuble confirmed in the same interview that Berlin will push for a greater private investor involvement in future bail-outs. To ensure German taxpayers faced the smallest possible burden it was important to have the possibility of an orderly debt restructuring with the participation of private creditors, he said.
Germanys proposals for a planned new rescue mechanism have run into resistance from the European Central Bank, which fears they will add to investor uncertainty at a crucial time for Europes 12-year old monetary union. Mr Schuble said the new mechanism would apply only to new eurozone debt but argued the European Union was not founded to enrich financial investors.
Mr Schuble envisaged a two-stage process in a future crisis. The EU would put in place the same sort of saving and rescue programme as imposed this year on Greece. In a first stage, the term structure of government debt could be extended. If that did not work, then in a second stage, private creditors would have to take a discount on their holdings. In return, the value of the remainder would be guaranteed, Mr Schuble said.
