http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/08/10/bloomberg1376-LPPYY40UQVI901-72BUJLGIQ5V5E622C62NRNDUSI.DTL&ao=2
Central Bankers Race to Protect Growth in 72 Hours of Decisions
Bloomberg August 10, 2011 04:00 AM
Wednesday, August 10, 2011
With euro-region governments failing to act swiftly enough to stop contagion from Greece's fiscal meltdown, it has fallen to the ECB to battle a crisis that's now threatening the survival of the euro. The ECB has lifted its benchmark interest rate twice this year, to 1.5 percent to fight inflation.
Balance Sheet
Buying Italian and Spanish debt may require the ECB to massively expand its balance sheet and open it to accusations of bailing out profligate nations, breaching a key principle in the euro's founding treaty and undermining its credibility. Within the ECB's ranks, Bundesbank President Jens Weidmann voted against the resumption of the program; he was joined by Juergen Stark, Germany's representative on the ECB's Executive Board and representatives from the Netherlands and Luxembourg.
In the U.S., Fed Chairman Ben S. Bernanke signaled that the central bank may consider a third round of large-scale asset purchases, even after the first two rounds totaling $2.3 trillion failed to secure sufficient job growth and sustain the two-year-old recovery. This week's decision to leave its benchmark interest rate near zero through at least mid-2013 provoked three dissents from policy makers, the most opposition since Bernanke took office in 2006.
Even as they take action, central bankers "don't know the panacea" and have disagreement within their ranks, Deutsche Bank's Schneider said. "It's increasingly unclear who can stop this spiral."
Lessons Learned
A scholar of the Great Depression, Bernanke said last year that among the lessons learned from the financial collapse of the 1930s is that "policy makers must respond forcefully, creatively and decisively" and that "crises that are international in scope require an international response."
"The wheels of fiscal change grind slowly, but central bankers can act more quickly" to address economic obstacles, said Alan Levenson, vice president and chief economist at T. Rowe Price Associates Inc. in Baltimore, which manages $521 billion in assets. "Central bankers are more nimble in breaking the negative feedback loop that's developed between financial markets and the economy."
--With assistance from Jeff Black in Frankfurt and Betty Liu in New York. Editors: Gail DeGeorge, Vince Golle
Central Bankers Race to Protect Growth in 72 Hours of Decisions
Bloomberg August 10, 2011 04:00 AM
Wednesday, August 10, 2011
With euro-region governments failing to act swiftly enough to stop contagion from Greece's fiscal meltdown, it has fallen to the ECB to battle a crisis that's now threatening the survival of the euro. The ECB has lifted its benchmark interest rate twice this year, to 1.5 percent to fight inflation.
Balance Sheet
Buying Italian and Spanish debt may require the ECB to massively expand its balance sheet and open it to accusations of bailing out profligate nations, breaching a key principle in the euro's founding treaty and undermining its credibility. Within the ECB's ranks, Bundesbank President Jens Weidmann voted against the resumption of the program; he was joined by Juergen Stark, Germany's representative on the ECB's Executive Board and representatives from the Netherlands and Luxembourg.
In the U.S., Fed Chairman Ben S. Bernanke signaled that the central bank may consider a third round of large-scale asset purchases, even after the first two rounds totaling $2.3 trillion failed to secure sufficient job growth and sustain the two-year-old recovery. This week's decision to leave its benchmark interest rate near zero through at least mid-2013 provoked three dissents from policy makers, the most opposition since Bernanke took office in 2006.
Even as they take action, central bankers "don't know the panacea" and have disagreement within their ranks, Deutsche Bank's Schneider said. "It's increasingly unclear who can stop this spiral."
Lessons Learned
A scholar of the Great Depression, Bernanke said last year that among the lessons learned from the financial collapse of the 1930s is that "policy makers must respond forcefully, creatively and decisively" and that "crises that are international in scope require an international response."
"The wheels of fiscal change grind slowly, but central bankers can act more quickly" to address economic obstacles, said Alan Levenson, vice president and chief economist at T. Rowe Price Associates Inc. in Baltimore, which manages $521 billion in assets. "Central bankers are more nimble in breaking the negative feedback loop that's developed between financial markets and the economy."
--With assistance from Jeff Black in Frankfurt and Betty Liu in New York. Editors: Gail DeGeorge, Vince Golle