To: Giraffe who wrote (22258 ) 10/25/1998 11:15:00 PM From: Alex Respond to of 116753
Germany's new regime turns on Bundesbank By Alex Brummer, Financial Editor Monday October 26, 1998 Germany's finance minister-elect, Oskar Lafontaine, launched a fierce attack on the Bundesbank yesterday, saying its monetary policy is too narrowly focused on price stability and hinders economic growth. His comments came as European Union leaders meeting in Austria sent a strong hint to the new European Central Bank that interest rates in Europe could be lowered to combat recession without posing an inflationary danger. The increasing anxiety of European leaders follows last week's decision by the European Commission to lower its forecast for EU growth and an economic forecast released today suggesting the world economy could move into slump in 1999-2000. The Centre for Economics and Business Research (CEBR) argues that if policy action is inadequate and financial market contagion worsens "world GDP could fall by as much as 2 per cent in 1999-2000". It says this would make the turn of the century the worst period for economic growth since 1945. The CEBR says that if decisive reflationary measures of the kind so far eschewed by the European Union were to be taken late this year and early in 1999 then the damage to the global economy could be limited. The potential for trouble is underlined by the Item Club of economists which warns that, even though a full recession in the UK may have been averted, growth next year could be as low as 0.5 per cent. Item says the fall in the UK equity market since July will prove to be "an effective brake on consumer spending, output and inflation", equivalent to a 1 per cent cut in interest rates. Mr Lafontaine said the Bundesbank's monetary policy is "fundamentally wrong" and its unwillingness to lower interest rates could endanger economic growth next year. "I don't believe in the be-all-and-end-all wisdom of the Bundesbank," Mr Lafontaine told the Social Democratic Party congress in Bonn. Bundesbank policy could be described as "too restrictive". His comments pitch the new German government against not only the German monetary authority but also the European Central Bank. The ECB, which will set interest rates for the 11-nation single-currency zone from January 1, has already indicated it will not bow to political pressure for cheaper borrowing to boost growth and create jobs. Europe's political leaders seem set to put pressure on the ECB to boost growth in the run-up to EMU, however. In Austria, much of the discussion focused on taking steps to avoid economic slowdown. The changed mood was said to reflect the fact that social democratic parties are now in power in 11 of the EU's 15 member states.reports.guardian.co.uk