Federal Reserve Chairman Alan Greenspan renewed a warning Tuesday that “creeping protectionism” could hurt the flexibility of the global economy, something that has played an important role in helping the United States and other countries weather economic hard times.
“Some clouds of emerging protectionism have become increasingly visible on today’s horizon,” Greenspan said in a speech delivered in Berlin at an event sponsored by Germany’s central bank.
“The costs of any new protectionist initiatives .... could significantly erode the flexibility of the global economy,” Greenspan added. “Consequently, it is imperative that creeping protectionism be thwarted and reversed.”
Greenspan did not single out the protectionist moves that concerned him.
The Fed chairman’s comments come amid a time of tensions surrounding globalization and the world’s trading climate. President Bush had imposed steep tariffs on certain types of foreign steel. But he lifted them in December under threat of retaliation by Europeans and other trading partners. On Capitol Hill, there has been various calls by members of Congress to raise protectionist barriers, especially in dealings with China.
In his speech, Greenspan didn’t talk about the future course of interest rate policy in the United States or the current state of the economy.
Amid signs that the economy is gaining traction, business analysts believe Fed policy-makers will hold a main short-term interest rate at a 45-year low of 1 percent at their next meeting on Jan. 27-28.
Earlier Tuesday, German Chancellor Gerhard Schroeder and Greenspan discussed the euro's recent surge against the dollar — a rise that many think could dampen European economic growth.
"We talked about the development of the American and the global economy, and the relationship between the euro and the dollar," Schroeder said Tuesday during a photo opportunity at the chancellery in Berlin with Greenspan, who remained silent.
But Schroeder said the question of how to react was up to the European Central Bank, the chief monetary authority for the 12 countries using the euro. "In this case, the possibilities to act lie with the European Central Bank," Schroeder said.
The euro's rise against the dollar provoked expressions of concern this week from leading European political figures such as French Prime Minister Jean-Pierre Raffarin, while ECB head Jean-Claude Trichet expressed "concern" about "brutal" exchange rate swings.
Economists say the comments were a first effort to slow the euro's advance. Other efforts — such as selling currency reserves or changing interest rates — are not likely at the euro's current level of around $1.2763, many think.
The euro hit an all time record of $1.2898 on Monday before falling after Raffarin and Trichet's comments.