ABSTRACT
Commentators seem to agree that today central bankers are in charge. In his article entitled "When Central Bankers Run the World," Bloomberg financial columnist William Pesek wonders why "there's been minimal backlash against this new world economic order, save the occasional protest at meetings of the World Trade Organisation or IMF." He suggests it is because of "voters and politicians alike finding comfort in knowing that a tested economic policy maker is at the controls.,,4 In
When the German economy started to slow down visibly in 2001, German politicians, including finance minister Hans Eichel, increasingly felt the need to implement stimulatory policies.5 However, just like their Japanese colleagues in 1999, they found that there was little they could do. Normally, three types of policy tools are available to governments in order to influence and stimulate an economy: regulatory policy, fiscal policy, and monetary policy. Since Germany, like many countries today, is committed to deregulation, privatization, and liberalization, there was no leeway for new regulatory intervention. Due to fiscal tightening imposed by the European stability and growth pact, stimulatory fiscal policy also had to be ruled out. This leaves us with monetary policy, which is the most powerful policy tool to influence an economy. However, politicians had no power over it. The ECB is independent from any government. Thus the government had been left without any serious macroeconomic policy tool. Even if the Bundesbank, Germany's central bank, felt that it needed to act to stimulate the German economy, there was nothing it could do. Once one of the most powerful central banks in the world, the Bundesbank has been transformed into the Frankfurt branch office of the European Central Bank. The ECB decides German monetary policy, whether German politicians or Bundesbank staff like it or not.
