Time for international monetary coordination

With Europe threatening the World Economy, here are a few thoughts by Paolo Manasse via Voxeu.

Many observers of the European Sovereign debt saga had long realised that the ECB was the only European institution up to the task of avoiding a breakup of the euro (see for instance Eichengreen 2009 on this site). The newly forged institutions, the ESFS/ESM, are both ill designed and inadequately funded (Manasse 2011).

The sharp criticism of German piecemeal approach, however, forgets that the ECB was created “in the image and likeness” of the Bundesbank; price stability is its core mandate. That was the price to be paid for convincing Germany to give up the Deutsche mark, and to share the same currency with inflation- and deficit-prone Italy. Now that the survival of the euro seems to hinge on the monetisation of southerners’ public debt, one way or another (primary or secondary purchases, anti-spread firewall), it is not surprising that the Bundesbank, backed by the FDP and CSU parties, is simply saying “no”. Weidman’s alleged resignation just proves the case. Full article here.