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Not entirely, says David Marsh in a recent OMFIF commentary: ‘In one aspect of currency market invective, the Americans have a point, in indicating that economic and monetary union in Europe distorts interest rates and exchange rates through ‘one size fits all’ monetary policies. Interest rates were undoubtedly too high for Germany during the first few years of EMU after it started in 1999. And they are too low for the Germans at the moment.’
It is not clear to me why current interest rates are too low for Germany. The German current account surplus of 9% means that the price level and domestic demand are too low for more balanced trade. So the ECB’s quantitative easing, in addition to independent capital flows, will stimulate domestic demand and make it more profitable for German firms to sell at home and to raise rents, wages and prices. This is the right policy for rebalancing the German economy, given the reluctance for domestic fiscal expansion.
If such measures stimulate the German economy, tax revenues will rise and Schäuble may even achieve his goal of fiscal consolidation by simply sitting back and enjoying the benefits of the Goldilocks economy. But he seems to think that criticising the ECB goes down well with voters who may otherwise be attracted to the right-wing and eurosceptic Alternative for Germany. [...]
If the Trump administration had any understanding of macroeconomics, it would show gratitude to the ECB instead of portraying it as a kind of German Reichsbank. Real exchange rate appreciation in Germany will contain US surpluses, if the national stimulus there does not trump the price effect. But it seems such expertise is too much to ask from the new US administration, which would rather attack institutions than think through its economic analysis. Seasoned commentators should not concede anything to the bullies in the White House.