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ECB Solidarity Is Crumbling

The ECBsolidarity is crumbling.

Austrian Central Bank Governor Ewald Nowotny (another name you have likely not heard, but he is a hawk) said that if there was a more serious downturn in the European economy, then it would be time to "rethink and to act maybe in a more decisive way."

He made the remarks in an interview in Beijing, reported by Reuters.

The key word is "rethink." The ECB has inflation as its sole mandate, not expanding the economy, but there is clearly a "rethink" going on.

Nowotny was careful to mention this "rethink" would occur only if inflation was under control, but the cat is out of the bag and a more aggressive ECB is coming.

Others are making similar calls. Cavaco Silva, president of Portugal, said that the ECB "has to go beyond a narrow interpretation of it's mission."

Nouriel Roubini, writing in the FT today, was even more emphatic: "Only if the ECB became an unlimited lender of last resort and cut policy rates to zero, combined with a fall in the value of the euro to parity with the dollar, plus a fiscal stimulus in Germany and the eurozone core while the periphery implements austerity, could we perhaps stop the upcoming disaster."

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