SPEECHES at separate events have seen two giants of economics strongly disagree over the Eurozone’s anticipated quantitative easing (QE) policy.
Larry Summers – former chief economist of the World Bank who nearly replaced Ben Bernanke as US Federal Reserve chairman – said QE would be welcome while former Bank of England boss Mervyn King held reservations.
“Europe is not growing and is on the brink of deflating,” Summers said at the London School of Economics (LSE) yesterday.
“Is it too much to ask that Germany take a forward-looking view of a common European destiny in thinking about macroeconomic policy ... rather than a retaining a green-eyeshade accounting mentality?”
His view is in contrast to King who on Monday argued that monetary easy was unlikely to work.
“We have had the biggest monetary stimulus that the world must have ever seen, and we still have not solved the problem of weak demand. The idea that monetary stimulus after six years... is the answer doesn’t seem right to me,” King said, also at the LSE but at a different event.
“There are quite serious disequilibria both between and within economies that, for good economic reasons, are depressing demand. Simply lowering rates even further or adding more monetary stimulus is unlikely to solve that problem,” he said.
Summers seemed to agree with King on the existence of underlying causes.
“We need to move beyond the Calvinist idea that more savings is always good and borrowing is bad because what we have right now ... is a chronic excess of saving and at least judging by the market evidence it’s likely to be with us for some time to come,” Summers said.