European Central Bank

The euro is overvalued and the European Central Bank needs a political counterweight to compensate for the fact that is it ”ultra-powerful”, the head of International Monetary Fund was quoted as saying on Monday. IMF director general Dominique Strauss-Kahn praised the ECB for containing inflation, but told Le Monde newspaper that eurozones countries needed to appoint a political supremo to make sure economic growth was promoted. ”The problem with the euro is that the European Central Bank, which does a good job controlling inflation, is ultra-powerful,” Strauss-Kahn was quoted as saying.

Central banks in Europe and North America moved Wednesday to increase the amount of money they could lend to banks and to make it more readily available in an attempt to ease the credit squeeze.

The future of Mervyn King as Governor of the Bank of England was being openly questioned last night after the bungled handling of the Northern Rock crisis. Pressure grew as the Bank was forced to pump £4.4 billion into the financial system to head off a meltdown. The decision amounted to a major U-turn for the Bank and Mr King, who had previously been reluctant to put more money into the market.

Once again the world is weathering a financial crisis. But the crisis, this time, is a two-edged sword hitting both sides of the Atlantic. Unfortunately, the mass media are focusing on just one aspect of this looming crisis, that which has been created by the subprime loans fiasco in the United States. But a crisis of proportions destined to affect the whole of Europe and ultimately impact the whole world looms across the Atlantic. The core of this crisis emanates from the beating heart of the European Union. On the American side of the Big Pond, as EU watcher Bernard Connolly observes concerning the fallout from the policies of the Fed’s former head, Alan Greenspan, “whatever mistakes Greenspan may have made, he just got it wrong: He didn’t deliberately set up this Greek tragedy” (Telegraph, August 20).