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JakeS:

Sovereign bonds are interest rate policy instruments, not fiscal policy instruments - there is no excuse for allowing the international money markets to constrain fiscal policy, and there is no excuse for allowing the international money markets to set policy rates.

The ECB is derelict in its duties as a central bank because it isn't buying Irish bonds at above market value. The Irish need to put the thumbscrews on the ECB. Which means putting the thumbscrews on Mrs Merkel.

The problem with this is that the ECB is not doing this out of its own volition, it's right there in Article 123 of the Lisbon Treaty. Of course, one can collude one's way around that.

The irony of the situation is that Merkel is pushing for treaty change to solidify the Austrian Economics shock therapy drivel by adding her "competitiveness agenda" to the constituent treaties. There is a need for treaty change, but the needed treaty change is not more German-inspired nonsensical macroeconomics, but for instance a repeal of Article 123.

As you can well realise, this is either recipe for gridlock assuming (big if) that a coalition of member states can be assembled around the demand to not only not accept Merkel's competitiveness pact, but rather more difficult, roll back what Germany (I'd bet good money that Article 123 was written by the Bundesbank) has already written into the EU constituent treaties.

So such a coalition can only lead to gridlock. Germany might even take its marbles away in a huff. I'm not sure they wouldn't if some other member state's default crashed their banks.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Feb 8th, 2011 at 04:32:12 AM EST
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The problem with this is that the ECB is not doing this out of its own volition, it's right there in Article 123 of the Lisbon Treaty. Of course, one can collude one's way around that.

That would be a lot more persuasive if the ECB were actively telling people how mind-numbingly stupid Art. 123 is. But in fact they are doing the opposite.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Feb 8th, 2011 at 05:05:58 AM EST
[ Parent ]
From the other thread:
"Mr. Trichet is a European civil servant. He's a very important European civil servant and any civil servant will of course always stick to the plan that is there at the moment, just as he will stick to the plan that is renegotiated when it is renegotiated."
(sez someone in the Irish Labour Party)

Frank Schnittger:

There is a view in Ireland that we are seriously pissing off all the people who matter in the EU
However, Buiter haz observed that
President Trichet of the ECB is already so far down the road of telling governments what to do and what not to do in the fiscal and structural reform domains, that one is hardly surprised by yet another lecture on budgetary policy from the Eurotower.  Traditionally, continental European central bankers speak very little about monetary policy in public, and are often unwilling to engage in public debate or answer questions about their monetary duties, but carry on endlessly about budgetary and structural reform matters.  It's always easier to speak about things you have no responsibility for, that are not part of your mandate and about which you probably don't know very much.


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Feb 8th, 2011 at 05:26:09 AM EST
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Well, the thing is, even when the ECB tries to workk within the rules it gets sabotaged from within by the hawks.

European Tribune - Non à Weber!

Quatremer points out that Trichet has been criticised by both Chirac and Sarkozy for "rigidity and obsession with inflation". However, Trichet is now recognised as being more flexible - Quatremer credits him with this:

BCE: après Trichet, à qui le tour ? - Coulisses de Bruxelles, UEECB: after Trichet, whose turn? - Backstage Brussels, EU
Dans la nuit du 9 au 10 mai, pour sauver une zone euro au bord de l'explosion, le président de la BCE a convaincu le conseil des gouverneurs de jeter par-dessus bord l'un de ses dogmes et a obtenu de pouvoir racheter sur le marché secondaire, celui de la revente, les obligations d'États de la zone euro attaqués par les marchés afin de casser la spéculation et stabiliser les cours.During the night of 9 to 10 May, to save the eurozone at the brink of explosion, the chairman of the ECB convinced the governing board to throw overboard one of its dogmas, and obtained the right to buy on the secondary market (where bonds are sold on), eurozone sovereign bonds attacked by the markets, so as to break speculation's back and stabilise prices.

Quatremer also credits Trichet with the decision not to take ratings agency notation into account when eurozone bonds were offered as collateral for borrowing from the ECB. Axel Weber, (and Jürgen Stark, the ECB's German chief economist) were both opposed to these measures and got in Trichet's way time and again -- and publicly:

Le président de la Buba n'a pas hésité, dès le 11 mai, à faire connaître publiquement son désaccord avec la décision de la BCE, rompant ainsi un principe pourtant imposé par l'Allemagne lors de la négociation du traité de Maastricht, celui du secret des délibérations. Désaccord depuis répété sans relâche, Weber allant même jusqu'à plaider pour le retrait des facilités de financement accordées aux banques et pour une augmentation des taux d'intérêt...The Buba chairman didn't hesitate, 11 May, to let it be publicly known he disagreed with the ECB decision [re secondary market buying], thus breaking a rule that had all the same been imposed by Germany in the Maastricht Treaty negotiations, that of the secrecy of ECB deliberations. The disagreement has not ceased since, Weber pushing it as far as to argue for withdrawal of financing facilities extended to banks, and in favour of an increase in interest rates...



Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Feb 8th, 2011 at 05:33:50 AM EST
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