Tim Geithner’s latest trip to Europe to implement a “printing press solution” to their financial problems has been rejected. Germany (throught the ECB) has decided to maintain their sovereignty and follow a sound monetary policy that will ensure their country’s and people’s fiscal future. The European Union will not follow in the footsteps of the United States and pursue financial suicide.
The following excerpt from ECB Governing Council member Jens Weidmann from an interview with Der Spiegel shows that Europe has not abandoned common sense when addressing their fiscal solvency:
“Once monetary policy starts to be used, there will always appear to be reasons to suggest it should continue to be used,” he told Spiegel.
“Of course in such an unusual crisis it would be wrong to stubbornly dwell on principles. But it would be just as wrong to throw out all established rules of monetary policy by citing a general emergency,” said Weidmann, who heads Germany’s Bundesbank.
Weidmann, like former ECB policy maker Juergen Stark, opposed the ECB’s decision in August to reactivate the bond plan following a 19-week pause. The bank decided to buy the bonds of Italy and Spain after they came closer to succumbing to the debt crisis.
“It is indisputable that buying bonds on the secondary market does not ease underlying problems,” he said.
It appears that the unprecedented power Mr. Geithner wields here was lost in translation when he addressed real finance ministers.
Germany’s top two finance officials rejected using the European Central Bank to boost the euro-area rescue fund’s firepower, rebuffing a suggestion by U.S. Treasury Secretary Timothy Geithner.
Inviting Geithner to a euro meeting for the first time, European finance chiefs who wrapped up two days of talks in Wroclaw, Poland, today also said the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation.
The German stance risks leaving the euro area without sufficient means to prevent the crisis from engulfing Spain and Italy. Geithner floated a variation of a 2008 policy he developed while at the New York Federal Reserve that would expand the reach of the 440 billion-euro ($607 billion) European Financial Stability Facility using leverage in a partnership with the ECB, said Irish Finance Minister Michael Noonan.
“The EFSF’s sole purpose is the financing of states and that’s in order as long as it’s done via the capital market,” Bundesbank President Jens Weidmann told reporters today. “If it’s done via the central bank it constitutes monetary state financing,” which is forbidden under European Union rules.
Since the United States was willing to bail out the European Union with a plan blessed by Mr. Bernanke to swap our dollars for Euros, why would they reject our help? The answer is simple: printing dollars out of thin air to buy Euros will transfer wealth from Europe to the United States. If Greece is expelled from the EU along with any other insolvent countries, the Euro will regain its strength. If the European leaders have come to this conclusion already, why transfer Euros for dollars from a bankrupt country with the largest debt in the history of the world?
The plan outlined below has become wishful thinking by the children in charge of our nation’s fiscal policy. Europe realizes that a deal with the devil will only benefit the devil as the United States is starting to recognize.
The U.S. is coming to Europe’s financial rescue.
So far, America’s role is fairly limited. But if the crisis continues to grow and the U.S. takes on a wider role, U.S. consumers and taxpayers could feel a bigger impact. The biggest exposure could come from America’s status as the single largest source of money for the International Monetary Fund.
The latest round of American financial assistance came Thursday with a promise by the Federal Reserve to swap as many dollars for euros as European bankers need. In the short run, those transactions won’t have much impact because the central banks are simply swapping currencies of equal value. If the move helps avert a wider crisis, it could help spare the global economy from another recession.
But over the long term, consumers could feel the impact of central bankers flooding the financial system with cash, according to John Ryding, chief economist at RDQ Economics.
“This is a lender of last resort function,” he told CNBC. “With the dollar injections that the Fed has done, it’s like giving a patient medicine with really bad side effects.” Ryding said the bad side effect in the U.S. has been inflation, which has picked up to 3.8 percent year over year.