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The sovereign, being sovereign, can spend as much as it likes, when it likes.

Not in the continent we live in, courtesy of the Maastricht Treaty.

Unless by "the sovereign" you understand the ECB.

We have managed to legislate ourselves into an absurd neoliberal/Austrian nightmare.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 04:14:36 PM EST
[ Parent ]
Tell that to Jake.

And of course the ECB is the sovereign. Another part of the european government.

by IM on Sun Aug 14th, 2011 at 04:35:47 PM EST
[ Parent ]
At some point we might stop talking past each other, though that seems unlikely.

What seems clear is that what Jake and I (but not only us) view as structural, political and economic problems, don't seem like really existing problems to you at all. So it is pretty pointless discussing policy at any level. Before we can talk about solutions we'd better agree on what problems we're supposed to be solving.

But from my point of view, the problems that are there cannot actually be solved within the institutional framework the EU has constructed, with the economic conventional wisdom of the people in charge or likely to be in charge (which is, from the point of view of conventional wisdom, pretty much self-perpetuating regardless of who wins elections). The drive to austerity demonstrates this - it's the only politically and institutionally possible policy in the EU right now, and it is already having disastrous consequences.  

Something's got to give, and I'm not sure what it's going to be.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 04:46:01 PM EST
[ Parent ]
It would perhaps be a good start if you admit that there are some problems in this world not caused by an particular institution residing in Frankfurt am Main.

And this institution is the ECB, not the Bundesbank.

by IM on Sun Aug 14th, 2011 at 07:14:55 PM EST
[ Parent ]
No, the ECB is not "another part" of the European Government. It is the only European sovereign.
The Eurozone rules, enshrined in the Maastricht Treaty (now part of the Lisbon Treaty), explicitly bar the ECB from giving credit to public entities or buying their bonds. This, quite simply, means the Eurozone member states now operate as local/regional governments under them used to. Lacking funding from a supranational entity since the European Union does not have its own fiscal resources, all states can rely on is their own tax income and they must run balanced budgets like a private firm or a local government in order to retain access to private credit. In the Eurozone, therefore, the State must be run like a private firm. What used to be a political slogan is now the only way to function consistently with the institutional framework. Even the Social Democrats admit it and propagate it.
You don't have to agree, in fact I don't expect you to.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 04:48:12 PM EST
[ Parent ]
How generous.

But as usual your linked blog post (very self-referential) is off topic.

The ECB is a part of the european government; but hardly the only one. There is the commission, the parliament, the council, the court. The ECB is not even the most powerful part: The council is equal in power, the court more powerful.

So if the EU is sovereign and I think it is, the ECB is one aspect of it. Not more or less.

by IM on Sun Aug 14th, 2011 at 06:30:49 PM EST
[ Parent ]
The ECB holds the power of the purse, not the parliaments or the governments, all courtesy of article 123 of the EU treaty.

And in fact, the ECB has on several occasions over the past year threatened to crash the banking systems of entire countries as a way to get neoliberal shock-doctrine reform packages implemented.

But don't take my word for it, just read Stiglitz's latest piece:

The discussions before the crisis illustrated how little had been done to repair economic fundamentals. The European Central Bank's vehement opposition to what is essential to all capitalist economies - the restructuring of failed or insolvent entities' debt - is evidence of the continuing fragility of the Western banking system.

The ECB argued that taxpayers should pick up the entire tab for Greece's bad sovereign debt, for fear that any private-sector involvement (PSI) would trigger a "credit event," which would force large payouts on credit-default swaps (CDSs), possibly fueling further financial turmoil. But, if that is a real fear for the ECB - if it is not merely acting on behalf of private lenders - surely it should have demanded that the banks have more capital.

...

Indeed, the most curious aspect of the ECB's position was its threat not to accept restructured government bonds as collateral if the ratings agencies decided that the restructuring should be classified as a credit event. The whole point of restructuring was to discharge debt and make the remainder more manageable. If the bonds were acceptable as collateral before the restructuring, surely they were safer after the restructuring, and thus equally acceptable.

This episode serves as a reminder that central banks are political institutions, with a political agenda, and that independent central banks tend to be captured (at least "cognitively") by the banks that they are supposed to regulate.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 06:52:02 PM EST
[ Parent ]
The ECB is a part of the european government; but hardly the only one. There is the commission, the parliament, the council, the court. The ECB is not even the most powerful part: The council is equal in power, the court more powerful.

The ECB is not subject to oversight from either. Another piece of obvious and manifest insanity that was instituted at the insistence of Helmut Kohl and the BuBa.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 05:28:06 AM EST
[ Parent ]
The ECB like the court is appointed by the national governments. That is a considerable power.

And of course in any legal conflict about the powers of the ECB the court would decide. Don't know if you can call it oversight in a strict sense.

by IM on Mon Aug 15th, 2011 at 08:41:58 PM EST
[ Parent ]
"National governments" is not "the Council."

And the ECBuBa isn't subject to any meaningful oversight from any court of law. Central bank "independence," remember? Will you at least concede that this is a stupid doctrine that needs to be killed dead and exorcised with garlic and holy water?

Sure, if Trichet commits embezzlement or rapes his secretary, he might be prosecuted (or maybe not - bankers have done worse and walked away in recent times). That does not mean that the courts can in any meaningful way provide oversight and policy direction to the ECBuBa (nor should they - that should be Parliament's job, through the Commission).

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 09:03:46 PM EST
[ Parent ]
"National governments" is not "the Council.

Of course they are. Who do you think constitutes the council?

But you got me there: The executive board is indeed appointed by the council, not the governments. They even use qualified majority voting.
(I was thinking of the way the commission and court are appointed)

The rest of the governing council is indeed appointed by national governments, namely the heads of the central banks.

And who can determine the personal of another institution has power over that institution.

And if the ECB is ever in a legal dispute, the European Court of Justice will decide. The court is probably the most powerful european institution and if you don't even know this, you have no business commenting on the EU.

by IM on Mon Aug 15th, 2011 at 09:33:25 PM EST
[ Parent ]
The ECBuBa can never get into any meaningful legal dispute, because its mandate explicitly includes protection from all democratic oversight. Central bank independence, remember?

Again: Will you at least grant that central bank independence is an idiotic doctrine and that the bank should be directly subservient to the Commission, just like every other EU civil service?

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 09:37:41 PM EST
[ Parent ]
a) will you at least grant that the court is more powerful

b) will you at least grant that the ECB is the ECB and not the Bundesbank?

c) will you at least admit that the national governments and the council determine the composition of the governing council of the ECB? Giving the federal republic about as much influence as larger german state had on the Bundesbank?

by IM on Mon Aug 15th, 2011 at 09:47:20 PM EST
[ Parent ]
a) will you at least grant that the court is more powerful

In most policy areas, yes. In economic policy, which is, after all, the area presently under discussion, no. There is no substantial judicial review of ECB policy decisions.

b) will you at least grant that the ECB is the ECB and not the Bundesbank?

De jure, certainly. De facto, I cannot point to a single material difference in policy before the past few days.

c) will you at least admit that the national governments and the council determine the composition of the governing council of the ECB?

Obviously, yes.

Giving the federal republic about as much influence as larger german state had on the Bundesbank?

a) That does not follow from the composition of the board.

b) The BuBa always was a state-within-the-state in Germany, so pointing out that the German government fails to control the BuBa representatives to the ECB board hardly proves that the BuBa is not still a cancerous state-within-the-state.

Now, do you or do you not believe that inflation targeting and central bank independence are moronic policies? Do you or do you not believe that states should be forced to pay interest on their own currency? I'd really like to know if we're even speaking the same language here.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 10:15:36 PM EST
[ Parent ]

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