Currency and Financial Markets Economic Policy Europe Macroeconomics

Germany’s Pyrrhic Victory

This article was first published on Project Syndicate on 10 February 2014.

The German Constitutional Court has ruled against the European Central Bank’s pledge to buy potentially unlimited quantities of distressed eurozone countries’ government bonds, and has called on the European Court of Justice (ECJ) to confirm its decision. Until that happens, the “outright monetary transactions” (OMT) scheme is effectively dead, weakening the ECB’s ability to act as an effective and credible financial-market backstop at a time when European governments … [continue reading]

Read more
Currency and Financial Markets Europe

Temporary End of the OMT Programme

The German Constitutional Court today declared that the OMT programme of the European Central Bank (ECB) constitutes a violation of European law, and asked the European Court of Justice to confirm its ruling. The curiosity is that the German Constitutional Court has no mandate to issue such a ruling on European law, as stressed by the two dissenting judges.

The ruling implies a temporary end to the OMT programme, as it would be highly controversial for the ECB to implement … [continue reading]

Read more
Currency and Financial Markets Europe

Taking the mandate of the ECB seriously

by Marcel Fratzscher, Michael Hüther and Guntram B. Wolff

This is a translation of the original German article published in FAZ on February 6, 2014.

European Central Bank President Draghi has played down German fears about high inflation and urged Germany not to ignore the positive impact of European monetary policy. Bundesbank president Weidmann has also recently stressed that there are no reasons for German concern about inflation. The public debate about European monetary policy, however, has become more heated … [continue reading]

Read more
Currency and Financial Markets Europe Macroeconomics

Delusional Gemany

This article was first published on Project Syndicate on 14 November 2013.

In recent days, Germany’s representative on the European Central Bank’s governing council has expressed strong disagreement with the ECB’s decision on November 7 to cut its benchmark interest rate. Now the European Commission has opened an investigation into whether or not Germany’s huge current-account surplus is causing economic damage in the European Union and beyond. This investigation and criticism of Germany’s export-based growth model has incited outrage in … [continue reading]

Read more
Currency and Financial Markets Economic Policy Europe Macroeconomics

The Drawbacks of Forward Guidance

This article first appeared on Project Syndicate on 11th October 2013.

The nomination of Janet Yellen to succeed Ben Bernanke as Chair of the US Federal Reserve comes at one of the riskiest moments in the recent history of the Fed. The Fed’s announcement in May that it might start tapering its long-term asset purchases surprised many central bankers, and triggered a sell-off from markets worldwide. But some of the good news about America’s economy was bad news for financial … [continue reading]

Read more
Currency and Financial Markets Europe Public Finances and Financial Economics

The Costs for Germany if the Eurozone Collapses

This article first appeared in the Autumn 2013 issue of Europe’s World (www.europesworld.org).

It’s not a message that public opinion in Germany wants to hear, but a collapse of the EU’s troubled single currency would have devastating economic, financial and political consequences for the eurozone’s largest and most successful member.

Germans have long been among the most europhile of countries, but their mood is turning against Europe and its common currency, the euro. There’s now an openly anti-euro … [continue reading]

Read more
Currency and Financial Markets Europe

The ECB must open itself up

Published in Financial Times (10th of June 2013)

On Tuesday, the conflict between the European Central Bank and the Bundesbank will turn into a showdown before the German constitutional court on the legality of eurozone policy decisions. No matter how the court eventually rules, the case is straining a difficult relationship. It is time to defuse this eurozone time bomb. As one of 17 national central banks, the Bundesbank is part of the eurosystem headed by the ECB. The current … [continue reading]

Read more