Thursday, May 10, 2012

Change the German Inflation Rate – Stupid! (os)

Today, among others, Financial Times and Spiegel online announce that, Germany is willing to accept a higher inflation rate, i.e, an above the European average inflation rate. This is done with the aim of restoring the competitive capacity of the other EU members, especially those from the south or periphery which is equivalent to depressing German competitiveness.  
The question I ask myself about it is: How? How does the Bundesbank wants to raise German inflation. The answer is as easy as it is frightening because it offers the loss of power and helplessness of the Bundesbank today.
The Bundesbank has simply lost his power to control or steer any inflation rate. Neither she can influence the German inflation rate via her seat at the ECB council (which of course no one can), nor can she directly influence the German money /credit expansion. Additionally, if, say, German Automobile producers or milling-machine producers don’t want to raise wages in order to keep their competitiveness, the Bundebank can do nothing about it but to accept it. Her only weapon – although not a little one – is to comment decisions like this or better, not to comment it in case of higher wage demand on behalf of the unions or members of the parliament.