EU wrong-footed by $600bn US injection

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The EU appears to have been wrong-footed by the US Federal Reserve's announcement that it will pump $600 billion (€422bn euros) into its economy as Brussels' sources close to the talks admit that the move has thrown a spanner into the works for the G20 meeting next week.

The EU joined a chorus of criticism today aimed at the US announcement to prop up its economy by buying fresh government bonds to the tune of $600bn.

"We don't know exactly how to address this," said an EU source, commenting on the Fed's sudden cash injection.

Economies in and outside the EU are in a spin as some begin to fear excessive inflation and worsening currency imbalances.

The source also indicated that the move could spell a delay in the EU's nascent economic recovery, which has only recently showed modest signs of rebound amid estimated growth forecasts of 1% in 2010.

"For some countries the culprit is quantitative easing and this is a huge dose of liquidity," the source continued.

Germany's finance minister, Wolfgang Schäuble, outright condemned the move as "naïve", according to the German press.

"To say now we will put another $600bn [in the pot] will not solve the problem," the minister argued at Berlin's annual Europa Forum.

The US initiative has sparked fresh tensions over imbalances in global currencies, which were deemed resolved at talks between finance ministers and central bank governors in Gyeongju, South Korea on 23 October.

Emerging markets China and Brazil aimed sharply worded criticism at the USA's move to buy treasuries, agreeing it could send their economies into disarray.

"Everybody wants the US economy to recover but it does no good at all to just throw dollars from a helicopter," said Brazilian Finance Minister Guido Mantega today.

Background

World leaders are currently engaged in a row over currency imbalances and monetary policies that keep currencies artificially low.

The row has come to a head at global G20 talks of world leaders, with an upcoming summit on Thursday 11 November expected to seek an agreement on resolving the row.

China has repeatedly allowed its currency to depreciate, which has angered its global trading partners. 

Europe has repeatedly tried to convince China to correct its currency exchange imbalance, pushing Beijing to focus more on its growing internal market rather than on exports.

Timeline

  • 11-12 Nov.: G20 summit in Seoul, South Korea.

Further Reading

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