Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.
The ECB is again threatening to withdraw liquidity from the private banking system of a member state in order to put pressure on the state to enact a shock-doctrine fiscal policy and socioeconomic reform package.

Not only is fiscal policy outside the remit of the ECB but I would like to know under what authority the ECB can decide to shut a bank out of its liquidity provision if the bank has eligible assets to repo.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu May 19th, 2011 at 06:15:30 AM EST
[ Parent ]
The ECB has clearly overshot its mandate. They try to become the most powerful EU institution, above the EC, the Council and the EU Parliament. "The question is," said Humpty Dumpty, "which is to be master - - that's all."
Through the Looking Glass, Chapter 6)

Some points that show this:

  • Lorenzo Bini-Smaghi said in a speech last January: "The experience of recent months has shown that governments tend to take unpopular decisions only under pressure from the markets. Action by the central bank that would eliminate such pressures would risk becoming counterproductive and creating moral hazard. Thus, there is a fine line between the goal of maintaining sufficient pressure on the authorities of the Member States and that of avoiding destabilising market dynamics that ultimately hinder the conduct of monetary policy".
  • Jurgen Stark on the FT, March 31, 2011: "implementing the necessary reforms not only benefits the countries concerned, but is also an obligation for all governments so as to ensure that their economies function smoothly within our monetary union. It is in this sense that one size fits all". This is outrageous. What he actually says is that the ECB doesn't take orders by the governments (central bank independence) but that the governments should more or less take orders indirectly from the ECB.
  • Jean-Claude Trichet said on March he would appeal the commission to the EU Parliament: "I would sum up our own understanding by saying that the Commission did not go far enough. The governments have even weakened the position of the Commission. And, we are counting on the Parliament."

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband
by Kostis Papadimitriou on Thu May 19th, 2011 at 07:25:39 AM EST
[ Parent ]
It appears that the 1992/3 crisis of the European Exchange Rate Mechanism was used by the Bundesbank to assert itself as the most powerful institution in Europe, already. In a recent diary of mine I quoted
this third-person account by the Bundesbank itself:
Crises in the ERM. In 1992, investors lose confidence in the stability of the pound sterling, in particular, and then, in 1993, in the French franc, resulting in speculative selling of the pound and franc; in 1992, the United Kingdom and Italy leave the ERM; in 1993, the fluctuations margins around the bilateral central rates are expanded sharply. The Bundesbank with its commitment to price stability had refused to lower interest rates massively. The partner countries are forcibly reminded of their responsibility for their currencies; the process of convergence needed for monetary union is strengthened.
I came across two interesting pieces. One by The Independent [UK]: The Sterling Crisis: The bank that likes to say realign: The Bundesbank (17 September 1992) and a cognitive-linguistic analysis of the press coverage: THE BUNDESBANK AND THE MAKING OF AN ECONOMIC PRESS STORY by a certain Michael White of Universidad Complutense de Madrid.
From The Independent:
The Bundesbank appears to have several reasons for its views on the EMS. Massive intervention on the foreign exchange markets to defend EMS currency parities threatens seriously to compromise German money supply growth targets, by increasing the quantity of marks circulating in the economy. At the same time, the Bundesbank also has to overcome the impression in Germany that it buckled to international pressure in cutting rates.

The Bundesbank also believes that until eventual monetary union in Europe, the EMS is a fixed, but adjustable, system. The Bundesbank case reflects its belief that it may be impossible for many EC countries to meet the convergence criteria of the Maastricht treaty, including a sharp reduction in budget deficits and national debt levels.


But underlying the Bundesbank's views is a deep- seated worry that its independence is under fire. When EMU first became a serious Community objective, Karl-Otto Pohl, Mr Schlesinger's predecessor, often warned of its high economic costs to the weaker countries. Bundesbank officials were concerned that their strict anti-inflation policies could be compromised by a European central bank sensitive to the less hawkish attitudes on inflation of some other European countries.

From Michael White:
One of the essential tenets of cognitive linguistics (which is the theoretic framework informing my analysis) is that thought is metaphoric and that consequently our conceptualisation makes natural and constant recourse to metonymy and metaphor in its processes.  Two immediate consequences immediately follow:  firstly, the fact that the use of metaphor and metonymy is to a very large degree highly conventional and secondly that it is so conventional as to go unnoticed in ordinary use or naturally occurring discourse ...


1) Bundesbank warns Bonn on federal debt (FT1:1-H)  -

very decidedly carries certain implications and not others.  In fact, it carries a wealth of these, for example:

  • the Bundesbank is in a position which commands a certain authority: it can warn.
  • if the Bundesbank warns, it probably has a stricter outlook on and a sharper awareness of the potential danger of the question at issue  than the recipient  of its warning.
  • Bonn has a certain degree of responsibility for the existence of federal debt.
  • Bonn is either unaware, or at least less aware than the Bundesbank of the potential danger of this debt.
  • there is a certain degree of independence between the two institutions.


  1. Many voices go into a Bundesbank utterance. (FT 11:3-H)[6]
  2. ... the Bank makes its views known to the outside world in a bewildering multiplicity of ways.  This is primarily because of its pluralistic way of making decisions. (FT11:3-L)
  3. When in recent weeks, a variety of Bundesbank's views ricochet onto the foreign exchange markets from several different angles, the Central bank can stand accused of inconsistency. (FT11:3).


Fourthly, my questioner at Debrecen, Torben Vestergaard, raised the issue as to the innocence or otherwise of the metaphors appearing in my analysis. If all discourse can carry and indeed conceal ideological positionings[14], metaphor, which typically highlights one/some aspects of phenomena and downplays or altogether hides others, could potentially provide a very powerful weapon for ideological manipulation. In light of metaphor's rootedness in conventional reasoning, this view has much to comment it: metaphor seems "naturally convincing" and is extremely difficult to argue against (see Lakoff 1992, Lakoff and Turner 1989). Thus, it is not surprising to find a proliferation of metaphor use in contexts where persuasion is at a premium - political partisan discourse, for instance or publicity (see Forceville 1995) In the array of metaphoric expressions presented in this article, there is little doubt, but there are cases where their force alone is particularly persuasive and it would be extremely difficult to counteract the message entailed. For instance, if the currency crisis is conceptualised as war and in that war the Bundesbank is held up to be orchestrating coups or practising plotting, sniping and sabotage, the position of the bank is certainly infinitely less defensible than it would be if it were referred to as being caught up in self-defence which would be considered highly legitimate. I have already mentioned that stereotype (which we have seen tapped for metaphorical purposes) is considered by Bell (1994:157) to be in itself a news value - that is, the closer a news item conforms to stereotype, the higher its chances are of getting into print. While stereotype is not to be written off completely as a valid component in argumentation (see Lee et al., 1995), nevertheless it should demand a critical perspective on the part of informed participants.[15] In short, then, with respect to this question as to the innocence or otherwise of metaphor, it would seem that the critical approach warranted by all discourse could be called upon to incorporate an extra effort in the presence of metaphor use.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu May 19th, 2011 at 08:58:35 AM EST
[ Parent ]
I like Mike! (White)

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu May 19th, 2011 at 11:17:59 AM EST
[ Parent ]
What Trichet actually said: Eurozone eyes new deal for Greece; ECB issues threat
ECB officials have warned for weeks that a debt restructuring would have catastrophic consequences for the euro zone and stepped up their rhetoric this week after Eurogroup Chairman Jean-Claude Juncker suggested the bloc was open to a voluntary extension of Greek debt maturities.

"For the ECB, according to our statutory obligations, a debt restructuring would undermine the collateral adequacy of Greek government bonds," the ECB's Stark said.

"This means that a debt restructuring would make the continuation of large parts of central bank liquidity provision to the banking system of Greece impossible."

The comments, and a report in the Financial Times Deutschland, that ECB President Jean-Claude Trichet had issued the same warning to euro zone finance ministers in a heated meeting of the Eurogroup on Monday, weighed on the euro, which slipped to $1.4235.

This may have a simple solution: the Greek commercial banks are put through a special resolution scheme. Good assets (not including Greek sovereign bonds), deposits and branches are put into "good banks"; bad assets (and Greek sovereign bonds) are put into "bad banks". The bad banks are given equity stakes in the "good banks".

Then the ECB cannod deny liquidity to the "good banks".

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu May 19th, 2011 at 11:06:19 AM EST
[ Parent ]
ECB officials have warned for weeks that a debt restructuring would have catastrophic consequences for the euro zone

From this I conclude ECB officials believe debt that cannot be paid back will be paid back through restricting and constricting the ability to pay the debt back.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu May 19th, 2011 at 11:53:18 AM EST
[ Parent ]
If we assume they're not suffering from fungal brain rot - a stretch here, admittedly - we have to accept that they understand the consequences will be default and further contagion.

The real point here seems to be "reform", through destroying what's left of the welfare state in Greece and lowering wage expectations to a Victorian level.

If you accept that "the economy" being talked about here includes the people who own it, but not the people who work in it, the project looks likely to be a success.

The other alternative, or complementary factor, is simple fascist Northern racism.

It's obvious the motivation isn't Europe-building and mutuality - which it might have been, with different leaders.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 19th, 2011 at 12:02:44 PM EST
[ Parent ]
The Game, as she is writ:

A cake exists.  There are two players and their goal is to get as much of the cake as possible.  The Play is to use a knife to cut the cake into two pieces.  Both players have perfect forecasting¹.

The approved min/max strategy deduced by Game Theorists is for one player to get the knife, cut the cake, and have the other player chose which slice they want first.

The ATinNM min/max strategy, given the stated Rules and Goal, is for one player to grab the knife, stab the other player, and keep all the cake.  Given both players have perfect foresight the Game is a death match over who controls the knife.  

Right now the German Banks have the knife; they aren't afraid to use it; in fact, they are using it.

Where this strategy fails is: once the cake is eaten, it's gone and the other player will "Cake No More."  Which becomes semi-critical if situation is a series of Cakes, a series of on-going Games, whose existence is dependent on the existence of the other player.  

No such thing as Solitary in Game Theory.

The ECB, et. al., seem to realize this and so are grabbing the knife, cutting the cake, and choosing which slice to take, graciously allowing Greece to continue to live.  The problem with this strategy is, eventually, the other player - Greece - after rounds of getting shafted eventually decides, "Bugger this for a game of soldiers," takes their cake, and walks.  This leaves the ECB, et. al., with the knife and no cake to cut.


¹ Yeah, I know: we're into 'orthogonal to Reality' territory but bear with it, for a moment

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu May 19th, 2011 at 01:18:33 PM EST
[ Parent ]


Top Diaries

Sisyphean syphilis

by marco - Mar 26


by DoDo - Mar 7

Two ruins

by DoDo - Mar 14

Greek MP Lapavitsas on Grexit

by Upstate NY - Mar 15

Recent Diaries

Sisyphean syphilis

by marco - Mar 26

Greek MP Lapavitsas on Grexit

by Upstate NY - Mar 15

Two ruins

by DoDo - Mar 14


by alexc - Mar 12


by DoDo - Mar 7

The new Greek government program

by talos - Feb 23

More Diaries...

Occasional Series