Many that follow both politics and international markets have been concerned about the US and the UK’s quantitive easing or ‘stimulus packages’ over the last few months. To cut to the heart of the matter it’s printing money to sustain a bubble with the hope that rather than popping the bubble might slowly deflate – history has shown us time and time again that it doesn’t work long term and all it does is create secondary bubbles which fail to provide a stable base for the economy.
Over the last few weeks German economy minister Rainer Brüderle has been pretty outspoken about this, so it’s with glee that I notice German Finanzminister Wolfgang Schäuble today shooting from the hip with language that could be described as distinctly undiplomatic, as he laid into the United States’ decision to approve as a huge economic stimulus measure that he considers harmful to German trade and industry. In a statement made at the BMW Foundation event in Berlin he said the Federal Reserve’s attempts to stimulate the US economy with a $600 billion cash injection “did not make sense” and that “with due respect, my impression is that the United States are at a loss, to now say, ‘we’re now going to have another $600 billion,’ will not solve the problem.”
This assault added to opinions he made public on Thursday on both ZDF’s Berlin Direkt, in which he stated that the US Federal Reserve had “[already released] an endless amount of money” into the US economy with “horrendous” results, and to ARD, where he stated that the Fed’s stimulus would “create additional problems for the world”
But is Schäuble right? Well in my view another stimulus package is unwise, it feels like a desperate attempt to inject further liquidity into the US market when the core problem isn’t liquidity but a toxic mixture of an uncompetitive manufacturing sector, weak foreign trade, over-burdened mortgage markets and a general lack of market confidence. The most likely effect of this ‘stimulus’ will be a hit on the already weakened dollar dragging it still further down: the result of which will undoubtedly make European (and especially German) goods significantly more expensive across the Atlantic and it shouldn’t be forgotten that many german brands consider the US to be a critical export market. Any change in the Dollar would be likely to directly, and seriously, impact the German economy: an economy which if we’re frank is already too deeply linked to an over-balanced exports market.
So far no other voices in the European Union has been quite so sharp in it’s criticism of American economic policy, but where the German’s lead others will no doubt follow. Schäuble has already vowed to take the issue up with the US at a G20 meeting in South Korea next week; lets hope other European economic ministers do the same to try and temper the US governments extreme reactions to local political pressure.