China said on Thursday that the U.S. Federal Reserve's move to ease monetary policy risked undermining the global economic recovery, adding that Washington "should not force others to take medicine for its own disease". A senior Chinese central bank official told reporters at the G20 summit in Seoul that the Fed's move had caused "strong concern" around the globe, and major reserve countries ought to factor in the global impact of their policies...And now for Germany. Let's just say that this transatlantic relationship is on the ropes as German officialdom no longer feels the need to be diplomatic. Honestly, I do not think Germany's demographic or cultural characteristics are conducive to it going on a debt-fuelled shopping spree in classic American style:
Zhang Tao, director of the international department of People's Bank of China, also warned that disorderly capital inflows resulting from the Fed's action could hurt emerging markets. "For emerging countries, capital inflows may lead to significant increase in asset prices and foreign exchange reserves, and many countries are concerned about that," he said. "Doubtlessly, disordered international capital inflows will make emerging countries very vunerable. As emerging countries are important for the global economic recovery, that will greatly increase the downward risks in the world economy."
Referring to an idea floated by Washington for numerical targets to be set for trade imbalances among G20 countries, a Chinese Foreign Ministry also told reporters that it was "not realistic" to have a current account target that fits all. A Foreign Ministry spokesman added that Chinese President Hu Jintao, discussing Washington's wish to see a sharp revaluation of the yuan, had told U.S. President Barack Obama earlier that reform of the currency would have to be gradual.
Germany's undiplomatic outbursts against U.S. policy, calling it "clueless" before a G20 summit, show growing estrangement on economics as America's focus shifts away from transatlantic ties to domestic challenges and Asia. "The Atlantic is getting wider," said Anton Boerner, head of Germany's Foreign Trade Association, who spoke of a "creeping alienation" between America and Europe, which has been exacerbated by the global financial crisis.Welcome to G-20.
Germany and the United States often criticize each other's approaches to aiding economic recovery, with U.S. calls for more expansive policy falling on deaf ears in fiscally disciplined Germany. But Berlin has taken the rhetoric to a new level. Finance Minister Wolfgang Schaeuble, 68, said last week that the U.S. Federal Reserve decision to buy $600 billion of government bonds undermined U.S. credibility and was "clueless." There was no point, he said, in pumping money into the markets.
China and Brazil were among those echoing his comments but U.S. officials were particularly stung by Schaeuble and German Economy Minister Rainer Bruederle saying the Fed move amounted to "indirect manipulation" of the dollar to boost exports; this at a time when Washington is criticizing China for exactly the same kind of strategy. "It's not acceptable for the Americans to criticize China for currency manipulation then slyly help the dollar by printing at the Federal Reserve," Schaeuble told Der Spiegel magazine.
Coming ahead of a G20 summit in Seoul where nerves about trade and currency imbalances will top the agenda, the comments were strong even compared to the frank tone that U.S. Treasury Secretary Timothy Geithner uses with the Germans and others. "The harsh tones betray major nervousness among top decision makers," said Boerner. "The effects of the financial crisis have made them insecure and afraid..."
But Chancellor Angela Merkel and her minister "think pretty much alike" even if her language is more moderate, said a German government source. She refrained from using names, for example, when she criticized policy keeping currencies artificially low to boost exports as short-sighted.
Simon Green, a history professor at Aston University in Britain, said the Americans' quantitative easing was a "red flag" to the Germans with their historic fear of inflation. Germany has made a painful effort to get competitive in the past decade of slow growth and stagnant wages and is unhappy to see "the Americans saying 'let's throw on the press, print money and get competitive that way,'" said Green.
One regional German paper, the Hannoversche Allgemeine, came to the conclusion that "never before has the Merkel government had such a direct confrontation with the United States..." But the chancellor and Bush's successor Barack Obama have always had a difficult time communicating, said William Drozdiak of the American Council on Germany...Merkel has doggedly refused U.S. overtures to fire up domestic economic demand in Germany.