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Bad for Euroland, Worse for Germany: The ECB's Record

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  • Jorg Bibow
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    Abstract

    This paper assesses the contribution of the European Central Bank (ECB) to Germany's ongoing economic crisis, a vicious circle of decline in which the country has become stuck since the early 1990s. It is argued that the ECB continues the Bundesbank tradition of asymmetric policymaking: the bank is quick to hike, but slow to ease. It thereby acts as a brake on growth. This approach has worked for the Bundesbank in the past because other banks behaved differently. Exporting the Bundesbank "success story" to Euroland has undermined its working, however; given its sheer size, Euroland simply cannot freeload on external stimuli forever. While Euroland cannot do without proper demand management, the Maastricht regime and especially the ECB are firmly geared against it. The ECB's monetary policies have been biased against growth and have thus proved bad for Euroland as a whole. Meanwhile, the German disease of protracted domestic demand weakness has spread across much of Euroland. Yet, by pursuing its peculiar traditions of wage restraint and procyclical public thrift, the ECB's policies have had even worse results for Germany. Fragility and divergence undermine the euro's long-term survival.

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    Bibliographic Info

    Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_429.

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    Date of creation: Nov 2005
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    Handle: RePEc:lev:wrkpap:wp_429

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    1. Jorg Bibow, 2004. "Assessing the ECB's Performance since the Global Slowdown A Structural Policy Bias Coming Home to Roost?," Macroeconomics 0407026, EconWPA.
    2. Kromphardt, Jürgen, 2003. "Lohnpolitik bei möglicher Deflation," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1998 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 83(8), pages 501-508.
    3. Jorg Bibow, 2002. "The Markets versus the ECB, and the EURO's Plunge," Eastern Economic Journal, Eastern Economic Association, vol. 28(1), pages 45-57, Winter.
    4. Jorg Bibow, 2004. "Assessing the ECB's Performance since the Global Slowdown: A Structural Policy Bias Coming Home to Roost?," Economics Working Paper Archive wp_409, Levy Economics Institute.
    5. Hans-Werner Sinn, 2005. "Basar-Ökonomie Deutschland - Exportweltmeister oder Schusslicht?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 58(06), pages 03-42, 03.
    6. Adam S. Posen, 2003. "Is Germany Turning Japanese?," Working Paper Series WP03-2, Peterson Institute for International Economics.
    7. C. Randall Henning, 1994. "Currencies and Politics in the United States, Germany, and Japan," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 15.
    8. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
    9. von Hagen, Jürgen, 1992. "Monetary Union, Money Demand and Money Supply: A Review of the German Monetary Union," CEPR Discussion Papers 719, C.E.P.R. Discussion Papers.
    10. Jorg Bibow, 2004. "Investigating the Intellectual Origins of Euroland's Macroeconomic Policy Regime: Central Banking Institutions and Traditions in West Germany After the War," Economics Working Paper Archive wp_406, Levy Economics Institute.
    11. Jörg Bibow, 2001. "Easy Money through the Back Door: The Markets vs. the ECB," Macroeconomics 0103004, EconWPA.
    12. Jorg Bibow, 2005. "Germany in crisis: the unification challenge, macroeconomic policy shocks and traditions, and EMU," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(1), pages 29-50.
    13. Joerg Bibow, 2004. "Fiscal Consolidation Contrasting Strategies & Lessons from International Experience," Macroeconomics 0402014, EconWPA.
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    Cited by:
    1. Jorg Bibow, 2006. "Global Imbalances, Bretton Woods II, and Euroland's Role in All This," Economics Working Paper Archive wp_486, Levy Economics Institute.

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