The Monetary Sin

Robert Kurz

Just as every doctrine of salvation produces its orthodox dogmatists, neoliberal economic theology does not lack this type. Principles over facts is the motto. With Bundesbank President Weber, yet another conservative apostle of respectability has thrown in the towel. Weber, recently considered Chancellor Merkel’s preferred candidate for the post of outgoing ECB chief Trichet, left his patroness in the monetary policy dispute. As a member of the same economic church, Merkel is more inclined to pragmatic muddling through. Weber presents himself as a strict guardian of money against the ECB’s easing policy and a “transfer union” that is to be used to plug the rampant debt. His steadfastness has only the flaw that he confuses cause and effect. It was not a lax monetary policy that brought about the crisis but, conversely, the crisis forced a lax monetary policy. The fall from grace of neoliberalism already took place under former Federal Reserve Chairman Greenspan in response to the dotcom crisis in 2001. Since 2008, the ECB, too, has gone against the wisdom of its own bible and turned to money glutting. The crisis respite bought with it threatens to turn into uncontrollable inflation in textbook fashion. If Weber, who is faithful to the Bible, had prevailed, however, the euro would have blown up long ago. Merkel wants to sit out the debt crisis through political horse-trading. The euro bailout fund is to be drastically expanded, contrary to earlier declarations of intent. In return, a vaguely conceived “competitiveness pact” is planned. The problem behind this is that the deficits, which have reached their limits, are nothing more than the flip side of Germany’s export surpluses. Regular debt relief would cause these one-sided exports to collapse and, at the same time, put the major German and French banks in trouble, which are sitting on mountains of junk bonds issued by the deficit countries. Thus, inflationary policy appears to be the lesser evil. The dogmatists of economic theology are right against the pragmatists and vice versa. That is why they must fail together.

Originally published in Freitag on 02/17/2011

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