The ECB is near to raising rates possibly in November. This is a mistake, but they feel they need to emulate the nominal rate increase performance of the FED. It's called rate parity stabilization. Teitmeyer who no longer has the pull he once did with the ECB emphatically stated that individual countries must pursue independent monetary policies. Europe is a demand oriented regime, but they have to practice the countervailing action the BOJ is implementing. Any attempt to raise rates will cause political disaster and a rapid reversal in the economic circumstances of a burgeoning Europe. They simply can't afford to do that now and raising rates would cause the Euro to tank which is completely contrary to the prevailing wisdom. This is similar to the fiat yen creation which is considered to be yen depressing, but isn't. Most likely the ECB is shadow boxing, but if not, that means they don't have a good understanding of the pervasive power of the dollar functioning as the world's reserve currency.
The name of the game is now output. The question is how cheaply can a country achieve it both for export and consumption. One way is to practice monetary stimulus. It's cheap and there's enough slack to get away it. Europe is also slowly changing their fiscal policies, but not rapidly enough, so they have to lean on monetary policy and they can do that by interest rate decreases because they are a demand oriented regime. In such a regime pushing down rates causes money creation.
In a supply oriented regime like Japan it doesn't work that way. In Japan you have to create fiat currency otherwise rate decreases are just pushing on a string. Japan needed pure Keynesianism and Europe needs Keynes plus supply side. They don't need reserve currency parity. If the ECB raises rates they will be doing what the FED did in the early '30s and such an action has the potential to blow the ECU into its true national units of identity. Germany will never subordinate themselves to French and British hegemony anyway economic expediency notwithstanding.
The G-7 meeting is not some cabal where countries collude. No G-7 member trusts any other enough to accomplish that even if any collusion direction were deemed mutual. The G-7 meeting may entail some sharing among financial ministers of each other's plights, but financial ministers have little control over domestic monetary policy. That's under the purview of CBs and CBs are quite distant to political direction although there are few who would believe that. However, to believe so is never confirmed by history. Like Teitmeyer said, CBs have to deal in the real world of transactions, not the dream world of political aspirations. If you want to know how the CBs decided mutually to curtail gold sales and inventory profiteering, you would need access to the wired messages sent long before the G-7 meeting. |
