FRANKFURT (MNI) – Eurozone imbalances are interfering with the
implementation of a common, stability-oriented monetary policy in the
single currency bloc, the Bundesbank said in its Monthly Bulletin,
published on Monday.
Adjustments are therefore urgently needed, the German central bank
said. However, it rejected recent calls on Germany to help reduce
imbalances by propping up domestic demand. Rather, the needed
adjustments must be carried out by deficit countries, it said.
Persistently high deficits not only pose a danger to the countries
running them, but they are “a source of danger for other [EMU] member
states and thus for the entire currency region,” the report said.
“They also put significant stress on the execution of a stability
oriented, common monetary policy,” the Bundesbank warned, adding that
the debt crisis had clearly highlighted the dangers.
“Against this background, it is urgently required to correct the
erroneous trend to date and prevent a repeat in future,” the report
said.
Efforts to more closely align domestic demand and production
capabilities in deficit countries must be at the heart of these efforts,
the Bundesbank assessed. While reinforcing growth potential will be
essential, these countries will have to cut demand to a sustainable
level, it added.
“With a view to the origins of macroeconomic imbalances, the bulk
of necessary structural adjustments can — in the opinion of the
Bundesbank — only be carried out by the deficit countries,” the central
banks asserted.
“Compensating measures by euro area countries with surpluses via an
increase of demand, for instance through more expansive wage and fiscal
policies, would neither address the problem nor bring deficit countries
significant relief given the weak… effects,” the report said.
Those calling for symmetrical adjustments are not only basing it on
a “naive view of mechanical shift of demand between deficit and surplus
countries” but they also exaggerate fears of a fresh recession in the
Eurozone should all countries draw down fiscal spending, the Bundesbank
noted.
The report asserted that despite adjustment needs, the recovery in
the Eurozone remains intact.
It also said that calls on surplus countries like Germany to step
up spending neglect the fact that these countries also face
consolidation obligations. In Germany, the government is
constitutionally required to cut annual deficits to near zero by 2016, a
requirement far more draconian than the EU’s Stability and Growth Pact,
which requires that annual deficits not exceed 3% of GDP.
The Bundesbank repeated its call to strengthen fiscal and macro
economic supervision within the currency union in order to ensure
greater stability going forward.
“An extensive macroeconomic fine controlling and coordination by
supra-national bodies are, on the other hand, to be rejected,” the
central bank said.
–Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com
[TOPICS: M$G$$$,M$X$$$,,M$$EC$,M$X$$$,M$$CR$]