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Germany Warns US on Market Bubbles |
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Saturday, 21 November 2009 |
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Germany’s new finance minister has echoed Chinese warnings about the
growing threat of fresh global asset price bubbles, fuelled by low US
interest rates and a weak dollar.
Wolfgang
Schäuble’s comments highlight official concern in Europe that the risk
of further financial market turbulence has been exacerbated by the
exceptional steps taken by central banks and governments to combat the
crisis.
Last weekend, Liu Mingkang, China’s banking regulator,
criticised the US Federal Reserve for fuelling the “dollar
carry-trade”, in which investors borrow dollars at ultra-low interest
rates and invest in higher-yielding assets abroad.
Speaking at a
banking conference in Frankfurt on Friday, Mr Schäuble said it would be
“naive” to assume the next asset price bubble would take the same guise
as the last.
He said: “More likely today is a scenario in which excess liquidity globally creates a new [sort of] asset market bubble.”
He
added: “That low interest rate currencies such as the US dollar are
increasingly being used as a basis for currency carry trades should
give pause for thought. If there was a sudden reversal in this
business, markets would be threatened with enormous turbulence,
including in foreign exchange markets.”
Mr Schäuble, a political veteran, took over the German finance
ministry after Angela Merkel began her second term as chancellor last
month.
His comments reflect the concern of European policymakers
that the continent will bear the brunt of a global adjustment process
through a stronger euro.
Further signs of official frustration
about policy steps being taken elsewhere came from Lorenzo Bini Smaghi,
a European Central Bank executive.
He said in a speech in Paris
on Friday that emerging Asian economies were continuing “strongly
accommodative monetary policies” in spite of their faster economic
recoveries.
Although Mr Bini Smaghi did not mention the euro or
the eurozone, he warned that delays in implementing an “exit [strategy]
by the countries that are ahead in the cyclical upturn creates
distortions and encourages other countries to delay their exit, thus
further adding to the imbalances and making the exit more difficult for
everybody”.
Separately, Jean-Claude Trichet, ECB president, issued his strongest warning yet that banks must control pay and bonuses.
Striking
a noticeably stiffer tone, Mr Trichet told the Frankfurt conference:
“Profits earned should be used, as a priority, to build capital and
reserves, rather than be paid out as dividends or excessive
compensation.”
The ECB president quoted a warning by Johann
Wolfgang von Goethe, Frankfurt’s most famous son, on the need for
self-restraint: “If I wanted to lavishly let myself go, I could well
destroy myself and my environment.”
Mr Trichet said:
“Compensation and bonuses must remain contained. Otherwise, we would
take risks that Goethe [has] already described.”
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