German Chancellor Angela Merkel said the Japanese government’s call for monetary easing and central- bank cash that’s been unleashed to stem Europe’s debt crisis constitute risks to the global economic recovery.
“I can’t say I’m completely free of worry when I look at Japan right now,” Merkel said today during a question-and- answer session after addressing the World Economic Forum in Davos, Switzerland. For Europe, the “large amount of liquidity” pumped into the financial system last year, particularly to help banks, has to be mopped up again, she said.
Merkel added her voice to German officials including Finance Minister Wolfgang Schaeuble who have challenged Japan for trying to devalue the yen to spur the world’s third-largest economy. Prime Minister Shinzo Abe, sworn in on Dec. 26, has called on the Bank of Japan (8301) to carry out unlimited monetary easing and accept a higher central bank inflation target to boost exports by pushing the yen lower against competitors.
In her speech, Merkel said that Europe should use 2013 to concentrate on bolstering competitiveness with the aim to produce goods across the region that the rest of the world wants to buy. She called for a “competitiveness pact” to follow steps already taken toward banking union and a fiscal compact.
The euro area must use the lull in the three-year-old debt crisis and avoid becoming dependent on the European Central Bank to cover for policy makers, she said. While the ECB has gone “to the limits of its own mandate” to defend the euro, it can only serve in a bridging function as governments tackle economic overhauls, she said.
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