IMF launches a new offensive against Germany

Group photo: Teima Onorio, Vice President of the Kiribati, Madelyn Antoncic, Vice President and Treasurer of the World Bank, Kristalina Georgieva, Member of the EC in charge of International Cooperation, Humanitarian Aid and Crisis Response, Mohamed Najib Boulif, Moroccan Minister Delegate to the Head of Government, in charge of General Affairs and Governance, Jim Yong Kim, President of the World Bank Group, Koriki Jojima, Japanese Minister for Finance, Christine Lagarde, Managing Director of the International Monetary Fund (IMF), Ilyas Moussa Dawaleh, Minister for Economy and Finance of Djibouti, in charge of Industry and Planning, Haruhiko Kuroda, President of the Asian Development Bank (ADB), Naoko Ishii, CEO and Chairperson of the Global Environment Facility (GEF), and Michael Anderson, Director General for Policy and Global Issues at the United Kingdom Department for International Development (DFID) (from left to right). World Bank, organized a special conference called "Dialogue of Sendai" on managing natural disaster risk. (EC Audiovisual Services, 10/10/2012).

Group photo: Teima Onorio, Vice President of the Kiribati, Madelyn Antoncic, Vice President and Treasurer of the World Bank, Kristalina Georgieva, Member of the EC in charge of International Cooperation, Humanitarian Aid and Crisis Response, Mohamed Najib Boulif, Moroccan Minister Delegate to the Head of Government, in charge of General Affairs and Governance, Jim Yong Kim, President of the World Bank Group, Koriki Jojima, Japanese Minister for Finance, Christine Lagarde, Managing Director of the International Monetary Fund (IMF), Ilyas Moussa Dawaleh, Minister for Economy and Finance of Djibouti, in charge of Industry and Planning, Haruhiko Kuroda, President of the Asian Development Bank (ADB), Naoko Ishii, CEO and Chairperson of the Global Environment Facility (GEF), and Michael Anderson, Director General for Policy and Global Issues at the United Kingdom Department for International Development (DFID) (from left to right). World Bank, organized a special conference called “Dialogue of Sendai” on managing natural disaster risk. (EC Audiovisual Services, 10/10/2012).

In the latest issue of its World Economic Outlook (WEO), which was published yesterday, the IMF raises the tone of criticism against Europe. It’s again the risk of deflation and the projection that “economic slack will remain high”, the two axes which constitute the cutting edge of criticism of North America against Eurozone. The latest WEO also notes that the contribution of exports to euro area’s weak growth will increase, while internal “demand will be held back”. This assessment will give substance for more grievances from the US against Germany. Washington accuses Berlin and other surplus euro area countries, that through their increased exports they ‘steal’ the growth potential from their Eurozone peers and the rest of the world.

In relation to the October WEO, the IMF marginally raises the growth potential of euro area to 1% for 2014 and 1.4% for 2015. However, the new report states that “recovery will be uneven. The pickup will generally be more modest in economies under stress, despite some upward revisions including Spain. High debt, both public and private, and financial fragmentation will hold back domestic demand”.

Stronger criticism

Criticism becomes louder when it comes to inflation or rather deflation prospects for Eurozone. The IMF writers actually question their own prediction for one percent growth in euro area this year, by underlining “the risks to the forecast, downside risks—old ones discussed in the October 2013 WEO and new ones—remain. Among new ones, risks to activity associated with very low inflation in advanced economies, especially the euro area, have come to the fore”. The IMF indicates that falling inflation raises real interest rates and thus poses new problems to the over-indebted euro area countries and privates. This prospect may derail any future planning in both the public and the private sectors and trigger more bankruptcies of public entities and private businesses.

The criticism about the euro area inflation is dwarfed though by what the IMF has to say about the main economic policy lines in Eurozone, which are currently of Germanic inspiration. IMF starts with a general purpose observation that “Stronger growth is needed to complete balance sheet repair after the crisis and to lower related legacy risks. In the euro area, the European Central Bank (ECB) will need to consider additional measures toward this end”.

More ECB money needed

Now, the entire German government, thinking of the measures that the IMF proposes for ECB to take, may be kept awake for many days in a row. Apart from more long-term liquidity for banks, a measure already partly in use, the IMF proposes that the ECB should apply a policy of “targeted lending”. The aim of all those measures is obviously to “strengthen demand and reduce financial market fragmentation”. In short, the IMF assigns to the ECB the task to take policy measures, which in some respect surpass the mandate of the central bank which, according to Berlin, is to strictly watch for inflation and nothing else. The Teutonic economic policy textbook doesn’t accept any monetary measures in favour of economic growth. The only growth policies that Germany recognises are more work and less pay. Monetary help is totally excluded.

With these proposals, the IMF intervenes also in the internal ECB conflicts about targeted lending and financial fragmentation reduction. The anti-German forces in it, led by President Mario Draghi, insist that targeted lending is a solid way to support growth in real economy. Of course the Germanic side of ECB’s governing council disagrees not only with the means (targeted lending) but with the goals too (real economy growth). According to the ‘German economic theory’, monetary measures cannot support effectively real growth.

As for the financial markets fragmentation within the Eurozone, the Germans don’t mind if the Italian SMEs cannot find financing. All south Eurozone SMEs are practically cut off from banking loans, and when they finally find credit, they pay for it much dearer interest rates, than their peers in France and Germany for the same business risks. IMF says that this financial fragmentation has to reduced. Again the Fund supports the efforts of Draghi, who has declared war on financial fragmentation, by using all the measures the German comptrollers allow him to. It’s not only that.

It seems that the IMF has decided not to let the German government go to sleep for many nights in a row. Its next recommendation is to “Repairing bank balance sheets through the Balance Sheet Assessment exercise and recapitalizing weak banks and completing the Banking Union by unifying both supervision and crisis resolution will be essential for confidence to improve”. In this way, the IMF puts its finger on Deutsche Bank wounds, reminding to Berlin that its showcase lender needs capital and cannot find it from the market. Some months ago Deutsche tested the capital market with an equity issue and attracted a mere €2 billion.

German banks x-rayed

Next, the IMF tells Berlin that it should stop blocking the construction of the much-needed Eurozone’s Banking Union, because there is no other way to restore confidence. It proposes that “completing the Banking Union by unifying both supervision and crisis resolution will be essential for confidence to improve”. Next come the dark region of relations between the German government and the lenders of the country. There are dark paths that bank credit follows in Germany, supporting some business sectors and companies under non-transparent procedures. A lot of people in Europe say that the link between governments and banks must be cut off, but the IMF means when it says “sever the link between sovereigns and banks”.

Last but not least, the IMF repeats the usual American inducement to Germany to complete structural reforms in the services sectors and “lift investment and prospects”. Judging from the extent and the severity of this latest attack of IMF against Berlin, it seems that the other side of the North Atlantic will not rest, until Berlin takes the message and acts accordingly. The target is that Germany should offer more and demand less from the rest of Eurozone and the world.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

MWC 2016: IoT experts fret over fragmentation

What paleoecology can teach us about fires in the Amazon

3 ways to fight short-termism and relaunch Europe

EU Parliament semi worried over democratic deficit

These are the countries where most adults still don’t have a smartphone

Scoring for the environment: what Mathieu Flamini’s top-flight football career taught him about leadership

We can decide to live within the limits of our planet

Eurozone economy desperately needs internally driven growth

Guterres calls for ‘maximum restraint’ following drone assault on key Saudi oil facility

New Zealand will have a new ‘well-being budget,’ says Jacinda Ardern

The business case for investing in sustainable plastics

Deaths from far-right terrorism have more than tripled in the West

Why is Grexit again in the news? Who is to pay for Eurozone’s banking problems?

Merkel had it her way with the refugees & immigrants but can Greece and Turkey deliver?

Turkey presents a new strategy for EU accession but foreign policy could be the lucky card

The latest emoji are more inclusive – but who approves them?

Thursday’s Daily Brief: Climate emergency, call to support breastfeeding, rising political heat and new investigation board for Syria

German banks suffer of nausea amidst rough seas

The strong version of the EU banking union gains momentum

‘No steps taken’ so far to end Israel’s illegal settlement activity on Palestinian land – UN envoy

GSMA Announces New Keynote Speakers, Event Updates for 2019 “MWC Los Angeles, in Partnership with CTIA”

Study: Trade supports over 36 million jobs across the EU

UN Security Council welcomes results of Mali’s presidential elections

Companies can help solve water scarcity. Here’s how

‘Virtual Biopsy’ device detects skin tumours in 15 minutes

UN chief condemns suspected Boko Haram attacks targeting Eid al-Fitr celebrations in Nigeria

UN agencies call for more resettlement and end to detention of asylum seekers in Libya

How distorted is the EU labour market by this crisis?

Monday’s Daily Brief: human rights in the Near East and a Forum for Refugees

EU finally agreed to cut roaming charges in 2017 but criticism is always there

Millions of young lives at risk due to humanitarian funding shortfall: UNICEF

This is why mountains matter more than you think

Further reforms in Japan needed to meet the challenges of population ageing and high public debt

These are the countries that eat the most meat

Advocate General ‘outlaws’ Data Retention Directive

Central African Republic: Guterres says UN mission committed to protecting civilians, helping stabilize country, as violence flares

EU Commission: Growth first then fiscal consolidation

5 ways blockchain can transform the world of impact investing

The Eurogroup offered a cold reception to IMF’s director for Europe

A Sting Exclusive: EU Commission’s Vice President Šefčovič accentuates the importance of innovation to EU’s Energy Union

WEF Davos 2016 LIVE: “European unity and cooperation is being called on question”, Vice President Joe Biden criticizes from Davos

Will the EU reconsider Frontex’s role in light of accusations about violations of migrants’ human rights?

UN condemns attack on Ebola treatment centre in DR Congo which left doctor dead, two others injured

‘No-deal’ Brexit preparedness: European Commission takes stock of preparations and provides practical guidance to ensure coordinated EU approach

The US bugged Europe: Is this news?

World Television Day celebrates an integral part of modern life

Chart of the day: This is what violence does to a nation’s GDP

Here are 3 ways venture capital can fund a better future

There are now four competing visions of the internet. How should they be governed?

The world needs a grand coalition to tackle climate change

Who cares about the unity of Ukraine?

Civilians ‘must never be a target,’ says UN in Afghanistan, amid troubling number of casualties during Ramadan

What UK and EU risk if Brexit “wins” these elections

French full-body veil ban, violated women’s freedom of religion: UN Human Rights Committee

OECD and European Commission join forces to further support structural reforms in European countries

Much more than a ‘lifeline’ for millions of households, remittances can spur global growth, says UN agency

Libya detention centre airstrike could amount to a war crime says UN, as Guterres calls for independent investigation

The Sichuan Province of China presents its cultural treasure to the EU

Terrorist content online should be removed within one hour, says EP

Wednesday’s Daily Brief: Syrian detainees, Zimbabwe hunger crisis, Kabul attack, Mexico disappearances, new tech to feed the world

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s