ECB spurns IMF with early exit strategy

[Dover]

ECB spurns IMF with early exit strategy
Published: November 29 2009 17:51 |

If you are a slow mover, you start early. That will be the European Central Bank’s leitmotif as it presses ahead this week with plans to unwind exceptional measures taken to combat the economic crisis.

The Frankfurt-based ECB will leave its main interest rate unchanged at 1 per cent. However, although anxious to avoid drama, expected policy tweaks will underline its determination to implement a timely “exit strategy” and return gradually to something akin to its pre-crisis way of controlling interest rates and providing liquidity.

In doing so it will put itself at odds with the International Monetary Fund, whose managing director, Dominique Strauss-Kahn, has urged policymakers to err “on the side of caution, as exiting too early is costlier than exiting too late”.

Events in Dubai have re-awoken fears of global instability. But the ECB believes the opposite to the IMF – that acting too late is as dangerous as acting too early, if not more so.

Lorenzo Bini Smaghi, an ECB executive board member, argued earlier this month that “the ‘err on the side of being late’ paradigm is potentially as dangerous as the ‘productivity growth’ paradigm of the late 1990s and the ‘fear of deflation’ paradigm of the early 2000s, which led some advanced economies to implement policy stimuli for too long, sowing the seeds of the subsequent crisis”.

cont'd

http://www.ft.com/cms/s/0/311896b8-dd0e-11de-ad60-00144feabdc0.html?ftcamp=rss&nclick_check=1

[westerebus]

1. Euro vs dollar.

It's about the exchange rate and trade. China's playing the American debt card, their dollar off set supporting policy pushes up the Euro and keeps the dollar lower then it should be. They complain a lot, but they buy a lot.

It works for them. They get to keep their dollar peg in place and buy what they want, when they want. As long as they buy our debt, it works for us too.

Is it sustainable? No. Are they going to try to keep it going? You can bet the faith and credit of the American Government on it.

The IMF is calling out the China economic bubble and the American debt bubble and praying loudly neither goes bust.

The ECB isn't going to surrender their own house of cards with out a fight.

Game on.