This site uses cookies...
Cookies are small text files that help us make your web experience better. By using any part of the site you consent to the use of cookies. More information about our cookies policy can be found on the Terms of Use.

Europe lacks the Fed

· New strategy for the central Bank of the United States ·

The great financial crisis is imposing new strategies. The uncertainty and lack of trust demand cooperation and coordination as well as immediate and balanced answers. For this reason the Federal Reserve's recent decision to announce every three months the forecasts for interest rates in the mid-term period is a small but significant revolution. Bernanke wants to invigorate the fragile American recovery by giving more precise instructions to investors. Hence this is not a paternalism of markets but a closer relationship and with greater collaboration. The Fed is showing a dynamism which might also do Europe good at this time.

The Fed's move has a political significance that cannot be underrated: 10 months after the elections, with the labour market that is showing unexpected signs of recovery and with fears that Europe's debt crisis may be contagious, Bernanke, confirmed by Obama in August 2009 – is seeking to put further brakes on the monetary policy in order to encourage growth. And he is doing so with an eye above all on the sectors most in trouble: banking and housing. In 2011 the bankruptcy of institutes diminished, but in recent years the collapse of real estate sales equalled about two million units and plans for the redevelopment of giants in the sector hit by the crash (Fannie Mae and Freddie Mac) are still being studied. The declarations of many Fed governors give us to understand that new measures for tax incentives are being examined, even if not everyone is in agreement. But in this phase, political stability is essential in order  to dictate a common line.

It is not by chance that Bernanke's proposal arrived precisely on the eve of a series of important discussions in Europe. This too is a political sign. It signals that the United States wish to free themselves increasingly from the Old Continent, protecting their banks from an infection that in Wall Street they consider henceforth more than predictable. Merkel and Sarkozy know well that the time has come to decide which road to take, with or without America. Berlin has so far dictated a single line: that of a reduced union with iron rules and budgets under control within a larger union.  However, a useful understanding with the markets cannot only dawn on severity. The only thing that Europe can do now is to seek to learn from its mistakes and impose its own itinerary. It is nevertheless true – as many important exponents of in the world of finance have pointed out – that Brussels has so far come up with few and late answers. But a BCE buttressed with overly restrictive treaties that limit action is conniving, and many governments are pressing for a central institute eqipped with all the useful instruments to provide liquidity and guarantee the good financing of markets. In order to prevent speculation and to govern “spreads”. Frankfurt must be able to purchase sovereign bonds at the time of the auction if the demand of investors is lacking. A greater dynamism in matters of monetary policy would be a convincing sign in the direction of the European banks that are still struggling to portion out credit, as well as of international investors.




St. Peter’s Square

Oct. 20, 2019