Felix Salmon smackdown watch, European central bank edition

By Felix Salmon
June 7, 2011
Martin Wolf's column last week was not an easy read. I did my best to turn it into English, only to run into an unexpected source of pushback: not only was I wrong, Martin Wolf was wrong as well.

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Martin Wolf’s column last week was not an easy read. I did my best to turn it into English, only to run into an unexpected source of pushback: not only was I wrong, Martin Wolf was wrong as well.

Enter Olaf Storbeck, the International Economics Correspondent with Handelsblatt, Germany’s business daily. He has an explanation of why Martin and I are wrong, which approaches in reading difficulty Martin’s original column.

I spoke to Olaf today, and he sent me a bunch of links in German, but since I’m having enough difficulty getting my head around these issues in English, I’m not even going to attempt to read them. (But for the record, start here, and then try here and here; Mark Schieritz here, here, and here; Thomas Strobel here and here; and finally this.)

In English, there’s also this press release from the Bundesbank, which says very clearly that “TARGET2 balances” — the things that Martin and I were worrying about — “do not pose specific risks to individual central banks”.

And if all that isn’t enough to be getting on with, Olaf has many more links within his own post.

Am I convinced that Martin was wrong? No — because a lot of this argument hinges on the idea that there’s a bright line between fiscal policy and monetary policy, and my feeling is that the distinction tends to get very blurry indeed in a crisis. If a central bank lends unlimited amounts of money into the banking system to prevent it from collapse, or a finance ministry enters into a fiscal TARP-style operation with the same goal in mind, are they so very different?

But I’ll be the first to admit that I’m no expert on any of this, and that when I blogged Martin’s piece I didn’t know how controversial his position was, and that many if not most central bankers would consider him simply factually incorrect on many counts. I thought his piece was excellent as analysis; as argument, I’m not fully persuaded.

So if there’s a central-banking wonk out there who fancies adjudicating this dispute, I’m happy to put it up for arbitration. Wessel? Ip? Is Martin on to something here, or not?

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