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Title:Bad for Euroland, worse for Germany: the ECB's record PDF Logo
Authors:Bibow, Jörg
Issue Date:2005
Series/Report no.:Working papers // The Levy Economics Institute 429
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 longterm survival.
Subjects:German unification
Bundesbank
policy inconsistency
stability culture
ECB
EMU
JEL:E31
E42
E58
E61
E63
E65
E66
H62
Document Type:Working Paper
Appears in Collections:Working Papers, Levy Economics Institute of Bard College

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