The European Central Bank is under heavy attack in Germany, a country that has long prided itself on defending the principle of central-bank independence.
For many EMU members, making their central banks independent in order to join the euro meant a change in political regime. It happened before. Duisenberg, a laconic Dutchman, responded that it was not uncommon for politicians to offer their opinion on monetary policy.
In Germany, it was very uncommon. France, at that time, was different. Charles De Gaulle was about to create the very presidential Fifth Republic, with the Banque de France reporting to the finance ministry. But that was then. Is the old dogma outdated? The United States, however, is doing better. Cumbersome political gridlock notwithstanding, it managed to address the macro problem it faced a lack of aggregate demand by implementing expansionary fiscal and monetary policies.
The US also dealt more effectively with its banking problems, which, initially, had been substantially more severe than those in Europe. Obviously, there is a strong interaction between both policy domains. More robust economies mean less vulnerable, more profitable banks that are better able to serve their purpose: funding the economy.
The ECB is experiencing exactly the opposite. There are public calls, especially in Germany, to put additional pressure on it. The less fiscal policy does to stabilize output, the more central banks are de facto strong-armed to carry the load unless, of course, they are prepared to let nature take its course, by allowing the economy to get stuck in stagnation, or worse.
