Connect with us

Central Bankers Want to Keep Economies Growing, but Politicians Hold the Keys

Central Bankers Want to Keep Economies Growing, but Politicians Hold the Keys


Central Bankers Want to Keep Economies Growing, but Politicians Hold the Keys


Mr. Trump has also begun mulling more tax cuts to lift the United States economy, though on Wednesday he insisted that it did not need one right now. And the Fed has room to cut rates, should a recession hit. The challenge is primarily one of intense policy uncertainty.

Europe, by contrast, has negative interest rates and a fraught economic backdrop — and while that owes more to fundamentals and global spillovers than domestic politics, growth is getting little help from national governments. In Germany, where China’s slowdown is hurting the manufacturing sector and the economy contracted in the second quarter, the government has been slow to spend more aggressively. Italy is also struggling, but it already has a heavy debt load, limiting its room to maneuver.

The European Central Bank, which runs monetary policy for 19 European countries, is expected to cut interest rates deeper into negative territory and even consider asset purchases in a bid to protect growth — but it is low on ammunition.

“Monetary policy has done a lot to support the euro area and continues, as you can see today, to do a lot,” Mario Draghi, the outgoing head of the central bank, said at a news conference last month. “But if we continue with this deteriorating outlook, fiscal policy will become of the essence.”

German politicians do seem to be cracking open the door to more spending, with Finance Minister Olaf Scholz indicating that the government could make up to $55 billion available. For scope, that is equivalent to a little more than 1 percent of Germany’s economy. The United States’ crisis-era spending package amounted to more than 5 percent of its 2009 gross domestic product, albeit with spending that was spread out over several years.

“This is the best available countercyclical tool in Europe,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, wrote in a research note. But he cautioned against expecting too much. “Politics will slow and could jeopardize the move to fiscal stimulus in Germany.”

Mr. Draghi will not make an appearance at the Wyoming meeting this year, though other European Central Bank leaders will be in attendance.


Source link

Continue Reading
You may also like...
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *


To Top