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

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

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

US – Russia bargain on Syria, Ukraine but EU kept out

Capital transaction tax on Ecofin table

New Zealand has unveiled its first ‘well-being’ budget

Commuters in these cities spend more than 8 days a year stuck in traffic

A Sting Exclusive: “Paris is the moment for climate justice”, Swedish MEP Linnéa Engström claims from Brussels

Connectivity and collaboration in the ICT industry: the key to socio-economic development

Brexit may finally not really happen; The Brits have second thoughts

Q&A on the 19th China-EU Summit to be held on 01-02 June 2017 in Brussels

Impact of high debt levels on least developed countries ‘cannot be overstated’, says UN

How a trade war would impact global growth

Slight easing of G20 GDP growth in first quarter of 2018

EU and India re-open talks over strategic partnership while prepare for a Free Trade Agreement

Flexible jobs can make work-life balance worse, a German study finds

Plastic Oceans: MEPs back EU ban on throwaway plastics by 2021

At last Britain considers a super-soft Brexit

European Semester 2018 Spring Package: Commission issues recommendations for Member States to achieve sustainable, inclusive and long-term growth

Netherlands: Budget MEPs back €1.2m in job-search aid for 450 redundant workers

EU plans to exploit the Mediterranean Sea and the wealth beneath it

5 key themes for reforming the EU, as elections loom

The quality of health education around the globe

Palestine refugees’ relief chief warns Security Council money to fund Gaza operations will run out in mid-June

Living in the mouth of the shark: we are all refugees

Juncker and Tusk killed Greece on 07 July 2015 to meet the Commission’s summer vacation plan? #Grexit #Greferendum #Graccident

LGBTQI+ and medicine, in the Land of the Pure

It’s Time to Disrupt Europe, Digital First

Why gin made from peas helps the environment

European Youth Forum @ European Business Summit 2014: European Youth Unemployment

Environmental labelling, information and management schemes are central to the circular economy

Launch of Pact for Youth: European Youth Forum calls for real business engagement

Pervasive corruption costs $2.6 trillion; disproportionately affects ‘poor and vulnerable’ says UN chief

Gynecologic care in the 21st century

European Youth, quo vadis?

JADE Spring Meeting 2017 – day 3: JADE Academy trainings, networking session and gala dinner – Excellence Awards winners revealed

Where are the world’s nuclear weapons?

Climate change is destroying a barrier that protects the US from hurricanes

UN investigates systematic sexual violence across South Sudan

Wind farms now provide 14% of EU power – these countries are leading the way

Antitrust: Commission sends Statement of Objections to O2 CZ, CETIN and T-Mobile CZ for their network sharing agreement

Agreement reached on digital copyright rules

UNICEF must triple budget to combat Ebola outbreak in DR Congo; complex crisis impacting unprecedented number of children

UN envoy says he ‘is ready to go to Idlib’ to help ensure civilian safety amid rising fears of government offensive

Parliament boosts consumer rights online and offline

Fair Taxation: New EU-wide system to resolve tax disputes between Member States applies from today

Trust is at breaking point. It’s time to rebuild it

Intensified Al Qaeda and ISIL activity in Yemen ‘deeply worrying’, says UN Human Rights Office

ECB bets billions on Eurozone’s economic recovery

US-China trade war at point of no return: Washington’s demands go beyond tariffs

‘I thought I’d never get out alive’ – the Muslim director who interviewed neo-Nazis

From Sweden to India, School climate strikes have gone global

Donor countries need to reform development finance to meet 2030 pledge

On Brexit: the outcome of UK elections next May to be based on false promises?

How storytelling can be a force for social change

‘Fire-fighting approach’ to humanitarian aid ‘not sustainable’: Deputy UN chief

Innovation and Entrepreneurship Changing the Face of Europe

Building climate resilience and peace, go hand in hand for Africa’s Sahel – UN forum

G20: Less growth, more austerity for developing countries

The Fourth Industrial Revolution must not leave farming behind

The road ahead to building a more sustainable 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