“In previous meetings it has seemed like there was a tension between the U.S. pushing a more expansionist monetary policy and European governments favoring austerity measures. Is that tension still there?”
Sweden’s finance minister, Anders Borg:
“For us to say that we would ever be over-expansionary, would be very difficult. The U.S. can be very expansionary. You have 10 percent deficit and interest rates are still hovering around 1,2,3, percent. It’s basically only the U.S. that could behave that way. For everybody else it would mean huge bond spreads. To my mind, the U.S. is saying to the rest of us that we should be more expansionary, but we’re also on top of a huge U.S. debt. The markets will not punish the U.S., they will punish everybody else standing on top of that debt. I would be very cautious about running a huge debt like the U.S. because we are a small vulnerable country. That is true of many of these European countries.”
Wouldn’t it make more sense that the “confidence fairy” punishes both the US bonds as well as currencies that is backed by large sum of US debt, namely, China, Japan, Taiwan etc?