LEADING US economist Paul Krugman has attacked Bundesbank president Axel Weber as a “risk for the euro’s fate” and blamed the euro-zone crisis on “German sensitivities” on debt and inflation.
The stinging words from Mr Krugman, a Nobel Prize winner and influential New York Times columnist, could damage Mr Weber’s ambition to succeed Jean-Claude Trichet next year as president of the European Central Bank (ECB).
In recent months, Mr Weber has clashed with senior ECB colleagues over his “hawkish” preference for economic policy that helps keep inflation low.
“Weber would be worried about inflation even when there was no inflation,” said Mr Krugman to Germany’s Handelsblatt business daily.
“With such a conservative president, the danger is much larger that a domino effect will result from Greece, through Spain and Portugal, to Italy. That would be a disaster for all.”
Mr Krugman said he viewed further European integration – from common fiscal policy to European Union pension and health systems – as a necessary consequence of the crisis.
Without integrated labour and tax markets, he warned that the target euro-zone interest rates should be 3 to 4 per cent – not the current rate of 1 to 2 per cent.
“I’d prefer to see an ECB president who would give greater credence to the dangers of deflation and the risk of a long stagnation,” he said, “but if you’re looking for someone who aims for zero inflation while unemployment rises to 13 per cent, then Axel Weber is definitely the right man.”
The economist had harsh words, too, for Germany’s planned €80 billion austerity package which, he said, would have a palpable negative effect on its European neighbours.
German politicians and economists rushed to the rescue of Mr Weber yesterday, with some managing to walk all over Mr Trichet in the melée.
“Mr Weber could restore trust in the bank so thoroughly destroyed by Mr Trichet,” said Frank Schäffler, finance spokesman of the ruling Free Democrats (FDP). “Mr Weber has always resisted the madness of monetarising state deficits in the ECB.”
Commerzbank chief economist Jörg Kramer said the euro-zone crisis would be overcome through “more stability and not less, and Mr Weber personifies the stability culture the euro-zone needs”.
