ECB Attacks G20 Plan Of Using IMF To Pump Cash Into Global Economy

"This is helicopter money for the globe," said Jürgen Stark, the ECB's chief economist and Germany's member on the bank's executive board.

"There hasn't been a study to see whether the world needs additional liquidity. In the old days one would take a long time to to explore such a thing," he told the German business newspaper Handelsblatt.

The paper cited an "unidentified" central banker protesting that the G20 had rammed through radical changes that could do "irreparable damage" to the global financial system "What is happening with the IMF is scandalous. They are going to lay waste to everything in this crisis as a result of political horse-trading," he said.

Markets have been in confusion over the implications of the G20 deal last week instructing the IMF to issue $250bn (£170bn) in Special Drawing Rights, a hybrid instrument that lets governments around the world take out an overdraft but also contains the seeds of a global currency in is own right.

The summit communique stated clearly that the purpose of the activating the Fund's SDR powers was to "inject $250bn into the world economy and increase global liquidity". This is separate from the move to tripple the IMF's fire-fighting fund to $750bn.

If used to create liquidity, the plan turns the Fund into a proto-central bank for the world, running an expansionary monetary policy over the heads of existing central banks. It appears that G20 delegations from Germany and other EU states may have signed the agreement in the rush last Thursday without studying the exact details.

The use of SDRs on this scale poses a immediate threat to the ECB, which is worried about a resurgence of inflation once recovery begins. It has pursued a more restrictive "steady-as-you-go" policy than the Anglo-Saxons, Swiss, and Japanese.

Dennis Snower, head of the IWF Institute in Kiel, said the scheme not only risks inflation down the road but also incubates future crises as badly-run countries are able to put off their day of reckoning. "If the international community does not take steps against this, the future bill for this stimulus could prove expensive," he said.

The dispute between the ECB's hawks and policy-makers in the rest of the world stems from a deep disagreement about the nature of this crisis. The IMF fears that the globe is in the grip of self-feeding spiral akin to the events of the early 1930s. It has warned of widespread civil unrest and even wars if this process is allowed to unfold.

Berkeley professor Barry Eichengreen, a leading expert on the Great Depression, said yesterday that global industrial output has been declining at an even steeper rate over the last nine months than in the early phase of the 1930s. World trade has fallen much faster this time.

“It’s a Depression alright,” he said.

http://www.telegraph.co.uk/finance/financetopics/recession/5119671/ECB-attacks-G20-plans-to-use-IMF-to-pump-cash-into-global-economy.html

ECB Attacks G20 Plan Of Using IMF To Pump Cash Into Global Economy

ECB Attacks G20 Plan Of Using IMF To Pump Cash Into Global Economy

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