Germany accuses US of breaking promise on monetary policy

Germany has accused the US of breaking a promise made at the G20 summit in Toronto in June by injecting a further $600 billion into its economy to stimulate growth.

Speaking on national TV on Thursday (4 November), German finance minister Wolfgang Schauble said that participants at the meeting had agreed to tighten their belts: "That was the common policy, that all developed countries, including the US, at the G20 summit in Toronto ... explicitly obliged to undertake."

"We will speak critically about this in bilateral talks with our American friends, but also at the G20 summit in South Korea in the coming weeks."

The US decision, announced on Wednesday, is to see the US Federal Reserve buy US Treasury bonds in a financial procedure called quantitative easing, which is also known as "printing money" by its critics as the extra liquidity is not necessarily withdrawn.

The US move gave a fillip to stock markets around the world.

But it also caused the value of the dollar to drop sharply against the euro, making EU exports less competitive on world markets..

Germany's Mr Schauble argued that the US should tackle the underlying economic problems causing unemployment instead. A chorus of German politicians echoed his cries, including economy minister Rainer Bruderle and Liberal party member of parliament Frank Schaeffler.

"Printing money again will trigger a tsunami across the world economy," Mr Schaeffler said.

The world's second most powerful central banker, the European Central Bank's Jean-Claude Trichet, bit his tongue during his regular monthly press conference on Thursday, however.

"No further comments on what is done by other central banks, who have their own responsibility, their own environment," he said, according to newswires. "I never comment on moves on the market on a day-to-day basis. I have no indication that would change my trust in the fact that the Fed reserve chairman is not playing the strategy and the tactics of the weak dollar."

"I have no reason not to trust them," he added.

The ECB has committed itself to a strategy of gradually dismantling the EU stimulus plans put in place in response to the global economic crisis.

But Mr Trichet hinted on Thursday that the bank may have resumed its purchases of euro-zone government bonds in an attempt to reduce tensions in the European debt markets.

Noting that figures out on Monday showed no new bond purchases by the ECB for the third week running, he said: "You have always information that are not real-time. They are addressing what has happened a number of working days before... you will see that the program exists."

[Source: By Andrew Rettman, Eubserver, Brussels, 05nov10]

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