FED and ECB : Two different visions of money
One of the cruces of the euro crisis is linked with the mandate of the European Central Bank (ECB).
The latter, declared independent from governmental authorities, inexorably pursues an inflation control mandate, the tolerance threshold of which has been fixed at 2%.
The pulley that the ECB uses to control the inflation level is its key rate, the modifications of which echo in the whole economy’s interest rate structures.
The ECB mandate differs singularly from that of the American Federal Reserve (FED), which pilots price levels and economic activity (being reflected in unemployment rates) in a more interventionist and simultaneous manner. Politically economically, the FED is a more active instrument than the ECB.
Why is there one such as mandate difference between two such comparable establishments?
The reason is mainly due to the fear (undoubtedly justified) that Germany had to see its Deutsche Mark, transformed in the euro, being subjected to successive devaluations by regular calls from the ECB. The latter should have increased monetary mass to respond to the budgetary and commercial deficits of the eurozone’s weakest partners.
However, beyond this German political demand, there is something else: the Germans feel public debts need to be financed by savings, without the latter losing their purchasing power. The United States, on the contrary, consider that public debts can be financed by monetary creation.
This opposition reflects antagonism between German Lutheranism and American monetary paganism. The German currency is hoarded, whereas the dollar is nothing but transactional.
Ever since the Weimar inflation (1923) and the confiscation of 94% of their goods during the replacement of the Reichsmark by the Deutsche Mark in 1948, the Germans require a strong, deflated and disciplinary currency.
For the Americans, however, the value of money is nothing but a secondary factor for job creation. Consequently, across the Atlantic monetary impression is more operational and less sacred. Moreover, between end-2000 and mid-2009, the dollar almost depreciated 100% with respect to the euro.
