Thursday, September 29, 2011

EFSF Leverage: Euro Zone's Most Dangerous Delusion

by Geoffrey T. Smith

Wall Street Journal

September 29, 2011

Last weekend's meetings of the International Monetary Fund and G-20 were punctuated by panicked calls for an increase in the size of Europe's rescue funds, most of them aimed, predictably, at Germany.

German Finance Minister Wolfgang Schäuble must have lost count long ago of all the wonderful schemes the French have devised for spending Germany's money, whether from Paris itself, or from the EU and IMF, where the French genius has always exercised an influence far beyond the country's political clout. He will also be long used to U.S. calls for Germany to boost its domestic demand and reduce its current account surpluses, a call that has never faltered despite the evidence of the 1990s, when a series of German current-account deficits did nothing to stop the U.S.'s long-term decline in international competitiveness.

But whereas the interventions of Treasury Secretary Tim Geithner and IMF head Christine Lagarde fit into a largely familiar, if not predictable, pattern, Mr. Schaüble must have realized things had taken on a more serious dimension when the mild-mannered and respectful Canadians, Finance Minister Jim Flaherty and central bank Governor Mark Carney, started screaming "DO SOMETHING!!" as well.


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