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

Jorg Bibow
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Jorg Bibow: The Levy Economics Institute

Macroeconomics from EconWPA

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.

Keywords: German unification; Bundesbank; policy inconsistency; stability culture; ECB; EMU (search for similar items in EconPapers)
JEL-codes: E31 E42 E58 E61 E63 E65 E66 H62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: 2005-11-17
Note: Type of Document - pdf; pages: 34
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0511018

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