Accommodating ECB monetary policy may reduce the incentive to address structural problems. However, ECB policy does not mask the structural problems, as these problems seem so obvious. The ECB has persistently insisted on the need for structural reforms.
Euro Area Inflation is still below target, and growth projections for the EA remain subdued. Tightening monetary policy now would probably destroy the very timid EA recovery.
Question 2:Do you agree that the German government should increase public spending given its persistently large current account surplus and given that it is part of the Eurozone?
I strongly disagree, because (as argued in my answer to the previous question), the German current account surpluses are a symptom, and not the cause of Eurozone problems.
Higher German government purchases will not solve the deep structural problems in France, Italy and the periphery, or help European banks.
The German current account surpluses do not represent a threat to the Eurozone economy, because Germany trades more with the Rest of the World (ROW) than with the Rest of the Eurozone (the share of the ROW in German trade is rising steadily). The rise in the German current account surplus mainly drives up the current account surplus of the Eurozone as a whole. If anything, the German current account surplus is a symptom of weak demand in the rest of the Eurozone--the German current account surplus does not cause Eurozone problems! The key challenge for the Eurozone is solving the deep structural problems in France, Italy and periphery countries, and the weakness of Eurozone banks (Kollmann et al., 2016)
Kollmann et al. (2015) present a thorough empirical analysis of the German current account, based on an estimated detailed dynamic macro model of Germany, the Rest of the Euro Area, and the Rest of the World. That study finds that the German CA surplus reflects a range of factors, such as the unfavourable demographic outlook for Germany, strong demand for German products by emerging economies, and German labor market reforms that have made Germany more competitive. The key shocks that drive the German current account have a surprisingly weak effect on real activity and inflation in the rest or the Euro Area. Depressed real activity in the Rest of the Euro Area mainly reflects home-grown problems.
References:
Robert Kollmann, Beatrice Pataracchia, Rafal Raciborski, Marco Ratto, Werner Roeger and Lukas Vogel, 2016. "The Post-Crisis Slump in the Euro Area and the US: Evidence from an Estimated Three-Region DSGE Model", European Economic Review, 2016, Vol. 88, pp. 21-41.
Robert Kollmann, Marco Ratto, Werner Roeger, Jan in’t Veld and Lukas Vogel, 2015.
"What Drives the German Current Account? And How Does it Affect Other EU Member States?", Economic Policy, 2015, Vol. 30, pp.47-93.
The CFM surveys informs the public about the views held by prominent economists based in Europe on important macroeconomic and public policy questions. Some surveys focus specifically on the UK economy (as the CFM is a UK research centre), but surveys can in principle focus on any macroeconomic question for any region. The surveys shed light on the extent to which there is agreement or disagreement among these experts. An important motivation for the survey is to give a more comprehensive overview of the beliefs held by economists and in particular to include the views of those economists whose opinions are not frequently heard in public debates.
Questions mainly focus on macroeconomic and public policy topics. Although there are some questions that focus specifically on the UK economy, the setup of the survey is much broader and considers questions related to other countries/regions and also considers questions not tied to a specific economy.
The surveys are done in collaboration with the Centre for Economic Policy Research (CEPR).
German Council of Economic Experts' view of ECB policy
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Question 2: Do you agree that the ECB's monetary policy masks structural problems of member states?
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Question 1: Do you agree that exceptionally loose monetary policy by the European Central Bank is no longer appropriate?
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German current account surpluses
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Question 2: Do you agree that the German government should increase public spending given its persistently large current account surplus and given that it is part of the Eurozone?
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Question 1: Do you agree that German current account surpluses are a threat to the Eurozone economy?
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