first_img Tags: NULL Share KCS-content Show Comments ▼ ECB should stay silent about monetary policy whatsapp whatsappcenter_img More From Our Partners Mark Eaton, former NBA All-Star, dead at 64nypost.comA ProPublica investigation has caused outrage in the U.S. this weekvaluewalk.comSupermodel Anne Vyalitsyna claims income drop, pushes for child supportnypost.comPolice Capture Elusive Tiger Poacher After 20 Years of Pursuing the Huntergoodnewsnetwork.orgRussell Wilson, AOC among many voicing support for Naomi Osakacbsnews.comAstounding Fossil Discovery in California After Man Looks Closelygoodnewsnetwork.orgFlorida woman allegedly crashes children’s birthday party, rapes teennypost.comBrave 7-Year-old Boy Swims an Hour to Rescue His Dad and Little Sistergoodnewsnetwork.orgNative American Tribe Gets Back Sacred Island Taken 160 Years by Taboolaby TaboolaSponsored LinksSponsored LinksPromoted LinksPromoted LinksYou May LikeMisterStoryWoman Files For Divorce After Seeing This Photo – Can You See Why?MisterStoryUndoNoteabley25 Funny Notes Written By StrangersNoteableyUndoTotal PastThe Ingenious Reason There Are No Mosquitoes At Disney WorldTotal PastUndoMoneyPailShe Was A Star, Now She Works In ScottsdaleMoneyPailUndoWork from Home | Search AdWork From Home for a USA company Might Be More Fun Than You ThinkWork from Home | Search AdUndoAtlantic MirrorA Kilimanjaro Discovery Has Proved This About The BibleAtlantic MirrorUndoWomenTales.com20 Pieces of Clothing Older Women should AviodWomenTales.comUndoBridesBlushHarry Potter Star Is Probably The Prettiest Woman In The WorldBridesBlushUndoPast Factory4 Sisters Take The Same Picture For 40 Years. Don’t Cry When You See The Last One!Past FactoryUndo JEAN Claude Trichet and his colleagues at the ECB are playing a dangerous game. Despite the Eurozone’s recovery still looking fragile, the central bank’s key playmakers seem determined to talk about pushing policy back onto a more “normal” footing. Just last week, the Bundesbank’s Axel Weber, in a speech given in New York, indicated his desire to see monetary policy quickly and effectively tightened.This very open desire to get policy back onto a more normal footing is a mistake for the simple reason that it is going to push the euro higher and make exports less competitive at a time when Europe is producing little domestic demand of its own. Foreign exchange traders have already moved the Euro/Dollar exchange rate past 1.40 and there is no reason to think that 1.50 or even 1.60 can be ruled out. The gamble that the ECB is taking by simply talking about a move to the monetary policy exit sign is a huge but unnecessary one. While the likes of Weber may be convinced that it’s the right thing to do, with such an opaque macroeconomic environment why does he feel the need to talk about it? Why take the risk? It’s not as if there is a near-term inflation issue to tackle.The ECB has tightened inappropriately in the past and could make the same mistake again. The best approach now would be to say nothing. By saying nothing the central bank would allow itself options. By saying nothing the ECB might not see the euro rise at such a dramatic pace. And by saying nothing, the ECB wouldn’t run the very real risk of damaging its credibility again by performing a policy U-turn.Don’t get me wrong; I am not saying that other central banks around the world are not taking big risks as well. The Fed’s headlong rush towards QEII could well be extremely reckless. But the fact that the Fed is getting ready to move in the opposite direction to the ECB should give those in Frankfurt pause for thought.It’s not too late for the ECB to sit on the sidelines, keeping its own council while the economic fog clears. If it turns out that a tighter monetary environment is required in 12 months then it hasn’t lost anything by saying nothing now. However, if it turns out that economic growth it still likely to remain sub-par then those at the ECB would still be able to provide assistance without anybody questioning their competence.This is especially true for Axel Weber. If the Bundesbank boss wants to take over from Jean Claude Trichet next year, he can’t make mistakes.Guy Johnson co-anchors European Closing Bell weekdays on CNBC. Sunday 17 October 2010 11:27 pmlast_img