Bank of Israel Governor Stanley Fischer on Friday took part in a conversation with the Bloomberg news agency about the role of central banks in the current economy.
"This is a challenging time and one of the bigger issues is whether the euro area stays together, whether any of this will lead to inflation as many contend, whether central banks are exceeding their authority. These are all tough issues," the Israeli central bank chief said.
Fischer was asked, "Israel's economy is 40% dependent on exports. You pay very close attention to the US and to what is happening in Europe. What is your prediction of what happens to Europe?"
"Well, they are at a very critical stage at the moment," he responded, "which may be part of the reason (European Central Bank) Governor (Mario) Draghi didn't come to this meeting, because they are figuring out how to implement a new strategy.
"And the new strategy is if countries are willing to get into serious programs of reducing their budget deficits, etc, then the central bank will be willing to lend to them. And precisely how to implement that – how much to give, what to do about interest rates – that's what they're working on right now I would guess."
Asked what is the kind of economics needed out of the crisis, Fischer replied: "I think we need well-based, empirically-based macro-economics of the sort that is in many of the textbooks.
"Obviously, the fiscal situation is very complicated in the United States, politically more than economically, and I don't foresee big changes expect in the chapter on central banking in that book."
Fischer was further asked, "When you look at this desire to match the short term with the long term, what would be your advice to President Obama or President Romney? How do you balance short-term stimulus with long-term responsibilities?"
"I'm not giving advice to any presidents at the moment," he responded, "but the general answer is that the short-term stimulus can't be taken away immediately. It has to be phased out.
"But there has to be a serious program to getting back to something like fiscal equilibrium and then gradually reducing the debt to GDP ratio over the course of time."