Thursday, June 17, 2010

Is the ECB Ditching Keynesianism?

NYT sounds in shock, but that is exactly what appears to be occurring. Keynesianism is built on the altar of reckless government spendin and central bank money printing. Now, it appears that the European Central Bank is rejecting the god, Keynesianism, for of all things, sound fiscal policy.

NYT reports:
Less government spending will equal more economic growth, the European Central Bank asserted Thursday in a report that helps clarify why monetary policy makers have been haranguing even less-indebted countries like Germany to cut their budgets.

Past episodes of budget cutting by countries including Ireland, the Netherlands and Finland led to faster growth fairly quickly, according to an analysis contained in the E.C.B.’s monthly bulletin for June that appeared to reflect the thinking of members of the bank’s executive board.

In recent weeks the E.C.B. president, Jean-Claude Trichet, as well as presidents of national central banks have been urging governments — which only months ago were starting cash-for-clunkers programs and other costly attempts to stimulate growth — to move in the opposite direction.
Whoa! This is bigger than Bill Clinton indicating he understood the importance og gold as a reserve currency.

Naturally, NYT immediately follows up in the same report by pointing out that Treasury Secretary Geithner and "many economists" are against the ECB anti-government spending stance. NYT even calls the ECB stance for fiscal responsibility "counterintuitive."

The ECB stance is however to be commended. Any central bank that held fast against money printing and promoted such a sound fiscal policy, particularly the ECB because of the sway it has over that large swath known as the EuroZone, would usher in an era of strong and stable growth.

Anyone who believes the ECB has the influence to bring this thinking to the EU countries, themselves, should be buying euros right now.

1 comment:

  1. The problem with the ECB is that it says one thing and does another.

    A month ago Trichet anounced that it would be buying bonds from the EU governements. It will probably be more cautious than Bernanke, but still.