Schaeuble Says Bernanke, BOJ Can Only Buy Time for Economies

German Finance Minister Wolfgang Schaeuble said that central banks around the world can only create breathing space for governments to carry out policies that put their economies back on a sustainable track.

“Mr. Bernanke too can only buy time, he can’t solve the problems in substance of the economy,” Schaeuble told reporters today in Washington, where he is attending a meeting of Group of 20 finance chiefs. The U.S. “is aware that they need a credible medium-term strategy.”

Japan’s conduct of monetary policy shows that it was “right and urgently necessary” to take a closer look at liquidity as a potential source of economic instability, Schaeuble said, referring to a G-20 decision taken at a meeting in Moscow in February. Schaeuble said “we wish them a lot of luck that it works” and that there are signs economic growth figures are improving. Still, the tool must be used carefully and “can’t substitute for the necessary medium-term measures.”

Schaeuble and Chancellor Angela Merkel, the tandem in charge of Europe’s biggest economy, have repeatedly insisted on the need for countries to conduct structural reforms to overhaul their economies rather than rely on monetary policy. While both acquiesced in the face of European Central Bank President Mario Draghi’s pledge of unlimited bond buying during the euro-area crisis, Schaeuble used a magazine interview today to call on the ECB to drain liquidity from the system.

Liquidity ‘Flood’

“Emerging economies’ concerns about an excessive flood of liquidity is impossible to ignore,” Schaeuble said in Washington. “That’s something that has to be taken seriously in industrialized countries and it makes no sense to just demand that no capital controls be imposed.”

Bundesbank President Jens Weidmann at the same briefing reiterated the text of the Moscow G-20 communique, which said the group “will refrain from competitive devaluation” and “will not target our exchange rates for competitive purposes.” Japan’s monetary policy can’t tackle its “structural problems,” he said.

Schaeuble said there was uniform recognition at a G-20 dinner last night that Europe has made great progress in stabilizing the euro and that financial markets are having a “less nervous, less uncertain view” of the currency union than one or two years ago.

“The reforms that we’ve embarked upon and implemented are taking hold,” Schaeuble said. Compared with earlier concerns about bailout votes in Germany’s parliament, yesterday’s vote on Cyprus and maturity extensions for loans to Ireland and Portugal was “pretty relaxed and pretty safe.”

Debt Push

Schaeuble planned to press his G-20 counterparts to sign up to similar “growth-friendly,” deficit-reduction policies to those he pursues in Germany, according to a government official who spoke to reporters before he left for the U.S. Germany will insist that G-20 members honor their deficit-reduction commitments made in Toronto in 2010 and seek to make progress on extending that pledge beyond 2016, the official said.

While this week’s meeting in Washington won’t yield an agreement on a follow-up accord on deficit reduction to the Toronto commitments, progress must be made by the time of the G-20 summit in St. Petersburg in September, Schaeuble said today.

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