Just In: Red Oskar's Out

Doug Henwood dhenwood at panix.com
Fri Mar 12 07:57:33 PST 1999

[From today's Lex column in the Financial Times. I love the way reviving 19th century economic policy is considered forward looking, rather than an even more aggressive turning-back of the clock.]


A spectre has been haunting European markets: the spectre of Oskar Lafontaine. His resignation is a seismic event in the birth of the single European currency. Mr Lafontaine was more than just any old German finance minister. He had hijacked Gerhard Schröder's economic policy and seemed hell-bent on turning the clock back. Hence the pressure on the European Central Bank to cut rates, the anti-business tax measures and his scheme to constrain the world's currencies in target zones. His influence extended beyond Germany; old-style socialists in other euro-zone countries were encouraged by his belligerence.

With luck, the Lafontaine era will be seen as an interlude in the inexorable modernisation of the euro-zone's economy. The introduction of the single currency should accelerate the process of structural change by heightening competitive pressures. As such, Mr Lafontaine's resignation is bullish for euro-zone shares. The same goes for the currency. The euro has been struggling since its birth, in part because of the dispute between Mr Lafontaine and the ECB. Paradoxically, his departure will make it easier for the ECB to cut interest rates; it will no longer have to worry about appearing to cave into political pressure. Lower interest rates might weaken the euro still more. But that should be outweighed by any fillip to growth and the perception that economic restructuring can now start in earnest.

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