Key Shift in Financial Policy Attitudes Taking Shape

Germany's Chancellor Angela Merkel seems to finally be seeing the light. Pushing for stimulus policies and abandoning her strict adherence to austerity in order to meet strict budgetary controls is now the order of the day. To what extent she will be able to coral the other members of her financial policy team, especially, Finance Minister Wolfgang Schäuble and Bundesbank President Jens Weidmann, remains to be seen. More than likely, both will toe the line and follow her lead. 

Once they are all on board and Germany becomes committed to economic expansion, European Central Bank President Mario Draghi will be able to follow his Quantitative easing policies full tilt. It has taken much too long to get to this point, but we are finally there. Probably, what shifted the attitude was the announcement that Germany's economy is shrinking. Even the most ardent anti-growth hawks are coming around. Inflation is gone and deflation is threatening to take hold.

The general contraction of economic activity is a threat to everyone, a theme heard loud and clear at the fall meeting of the IMF and World Bank in Washington DC right now. Unfortunately, we are hearing mostly about the risks ahead and very little about the remedies to combat this scourge. However, it is important that the shift in thinking has taken place and now we should see some action by the various governments around the globe.