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Time for the ECB Board to be sacked

by Frank Schnittger Fri Jan 16th, 2015 at 07:26:47 AM EST

With the Syriza movement led by Alexis Tsipras likely to win next weeks elections in Greece, the possibility of Greece being expelled from the Eurozone, at German insistence, raises its head. We must be clear that Greece does not stand alone in this conflict, and that the German dominated ECB also has some culpability in the continuing crisis. Unfortunately Ireland's national leaders have shown no interest in supporting Greece or any other Eurozone state in this crisis - preferring to gloat in Ireland's own relative success in exiting the bail-out and fearful of rocking the boat at the ECB.  

This cozy "national" consensus needs to be challenged. I have sent the following letter to the editors of Irish national newspapers:

Unlike the US Federal Reserve, the European Central Bank has one, and only one self imposed target by which it's performance can be judged: to keep inflation at or just below 2%.  It has failed miserably to achieve that target, with the result that those people and nations with large debts have seen their real debt burden increase.  

This suits net creditor nations like Germany, but is a disaster for almost everyone else, with deflation likely to lead to increased real indebtedness, recession and perhaps even depression in the rest of the Eurozone.

Lest anyone think this is an accident of history, it is an outcome advocated by some German economists and by many of the German dominated staff in the Frankfurt based ECB itself.  Essentially it is a case of the Eurozone being run by Germans in Germany's interest.

And yet no one calls for the resignation of the ECB Board for failing to achieve its one self-declared target, never mind achieving a broader set of economic targets including employment levels like the US Fed.  Our leaders seem to be afraid to criticize the ECB in case it might once again threaten to pull the plug on our banking system.

The ECB is the most undemocratic institution in the EU, with Ireland never even having sought representation at Executive Board level.  It is time that must change, and it is time our political leaders had the courage to hold our banking masters to account.  

The Eurozone must be run in the interests of all Eurozone members, and failing that we must consider acting in our own national interest and leave the Eurozone in concert with other Eurozone members whose economic needs are being ignored.

In further news, the ECB has refused to cooperate with the Irish Parliamentary inquiry into the Irish Banking Bail-out Fiasco which looks like costing Irish taxpayers something north of €40 Billion even if the Bank of Ireland and Allied Irish Bank end up refunding the taxpayer in full - claiming it is accountable only to the European Parliament. When was the last time the European Parliament ever exercised effective supervision over the ECB? Perhaps it is time for all of us to start lobbying our European Parliamentarians...


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And as usual, so on.

Careful with the use of the G word. Seems to be a bit of a trip wire here still.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Fri Jan 16th, 2015 at 01:18:34 PM EST
Germany is only working in its own national interest.  The question is why aren't net debtor nations doing the same, and in concert. Germany has 2 out of 7 members of the ECB Executive Board which means that with Peter Praet (Chief economist, Belgium) and Yves Mersch (Luxembourg), net creditor nations have a majority.  However the unanimity rule generally means that the inertial "do nothing" option is the always the default position, even if Draghi might wish otherwise.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 01:36:09 PM EST
[ Parent ]
"one out of six by the way."

So some countries have two members in  the governing council.

by IM on Fri Jan 16th, 2015 at 02:14:28 PM EST
[ Parent ]
Jörg Asmussen and Sabine Lautenschläger are the current German members of the Executive Board, which numbers 7 if you include Draghi.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 02:38:35 PM EST
[ Parent ]
No, Lautenschläger replaced Asmussen - now deputy Labour minster in Germany - at the end of 2013.
by IM on Fri Jan 16th, 2015 at 02:49:03 PM EST
[ Parent ]
OK, thanks, the Wikipedia page doesn't make that clear

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 02:53:11 PM EST
[ Parent ]
" is a German jurist and central banker. She currently serves as a member of the executive board of the European Central Bank,[1] succeeding Jörg Asmussen ,[2] and was formerley vice-president of the Deutsche Bundesbank"

Of course she is a jurist. But then the average german economist is even madder.

http://en.wikipedia.org/wiki/Sabine_Lautenschläger

NB: A very short entry for such a powerful person.

by IM on Fri Jan 16th, 2015 at 03:01:53 PM EST
[ Parent ]
Wrong. Germany is not even reaching so high a standard as working in it's own self interest. They are acting according to economic theory which is untrue, and are making themselves poorer than they need be in the process.

Germany needs to increase spending. A lot. German loans to the rest of europe can never be repaid as long as Germany net exports, which means there are only two possible outcomes: German exports collapses -> German economic depression. German imports rise - > European economic recovery.

This is both good news - it means we don't need to ask Germany to act against it's true interests to solve the problem..
And bad news, because it means we do need them to abandon dogma. Which is very hard.

by Thomas on Fri Jan 16th, 2015 at 05:16:18 PM EST
[ Parent ]
Agreed - I should have written German's self perceived self interest. However there is nothing irrational in a net creditor nation seeking to avoid debt write-downs and a return on its loans. The irrationality lies in wanting all this and wanting to be a net exporter as well.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 05:25:39 PM EST
[ Parent ]
...wanting to be a net exporter as well.

Which, one would think, someone in Germany could remember was Germany's original goal for the EU.

by rifek on Wed Jan 28th, 2015 at 12:53:43 PM EST
[ Parent ]
a) the governing council is relevant, not the board

b) "and that the German dominated ECB also has some culpability in the continuing crisis."

Let's do the time warp again? Are you stuck in the Trichet era?

c) Draghi and the majority of the governing council isn't the problem. National governments are.

by IM on Fri Jan 16th, 2015 at 02:04:07 PM EST
a) Having spoken to a close friend who has worked for the ECB in Frankfurt as an economist, I beg to differ. It is the senior management staff of the ECB, led by the Executive Board, who provide the theoretical frameworks, do the research, prepare the options, and who are responsible for overcoming the "technical problems" which often seem to prevent more decisive action. Not surprisingly, you don't find many MMT or Keynesian economists employed by the ECB!

b) The failure to achieve "2% or just below" inflation which is the only numeric metric we have to judge  ECB performance is happening NOW, and much more so than under Trichet. The threat of expulsion for Greece is also happening now.

c) I don't disagree that national governments are also part of the problem - hence my letter aimed at influencing Irish public discussion and policy making.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 02:31:15 PM EST
[ Parent ]
" It is the senior management staff of the ECB, led by the Executive Board, who provide the theoretical frameworks, "

perhaps and perhaps not. But the governing council is dominated by central bank governors. each with a considerable staff of their own. So they are not helpless victims of the ECB staff.

b) But the monetary policy is much different now. The fiscal policy isn't

c) No. Not also. The national governments have been the main problem since autumn 2008.

by IM on Fri Jan 16th, 2015 at 02:41:50 PM EST
[ Parent ]
b) Yes, stated monetary policy is much different now, but so far it has been only words.  For instance, Benoit Coeuré states that the attitude to Sovereign bailout of private banks is much different now, but that supposed change hasn't really been tested in practice yet.  And as far as Ireland is concerned, his attitude is simply that the ECB would take a very different approach now, and that Ireland was unfortunate that its crisis came a few years before the change of ECB attitude/policy - scant consolation to Irish taxpayers and unemployed who are living with those mistakes now, and who still don't see the ECB take decisive action, either retrospectively in the case of Ireland, or currently, in the case of Greece.

c) It has been a constant source of amazement to me the degree to which the debate has been framed by net creditor nations seeking a rent on their surpluses as opposed to net debtors who simply can't pay that rent - as in the case of Greece. Clearly this is a problem much wider than Germany who have only two representatives on the Council. I think we are talking about ideological capture as well as financial capture which I am seeking to challenge here - particularly at an Irish national level - and in support of Greece, as I believe their expulsion would be extremely damaging to the EU and the Eurozone, and could well precipitate the collapse of either or both.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 03:18:42 PM EST
[ Parent ]
"Yes, stated monetary policy is much different now, but so far it has been only words. "

Is it? The euro is worth 1.20 $ now, interest rate have tumbled, especially on government bonds, the ECB has done everything it can on interest rates and is now moving on to the more unconventional form of monetary policies.

Draghi may have bluffed , but it worked very well. And all this against vocal opposition of the Bundesbank and a german press that paints Draghi as an hyper-inflationary southron.

"and who still don't see the ECB take decisive action, either retrospectively in the case of Ireland,"

build a time machine?

 "or currently, in the case of Greece."

They are supposed to do what?

by IM on Fri Jan 16th, 2015 at 03:31:08 PM EST
[ Parent ]
In the case of Greece, there is no solution that does not include a large element of further debt forgiveness.

In the case of Ireland, the ECB's prohibition of "monetary financing" prevented a much cheaper funding of the the bank bail-out costs after they were taken onto the Sovereign balance sheet - even after the ECB admitted it had been wrong to insist on the full repayment of bond-holders.

The Irish Government is now negotiating the early repayment of those loans as much cheaper money is now available on sovereign debt markets - no thanks to the ECB - but thanks largely to US QE which has flooded global markets with money looking for a home and thus depressed interest rates.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 04:18:33 PM EST
[ Parent ]
"as much cheaper money is now available on sovereign debt markets - no thanks to the ECB"

Come on. You can't really claim Draghi actions had no influence on the european sovereign bond markets.

by IM on Fri Jan 16th, 2015 at 04:31:37 PM EST
[ Parent ]
No I'm not claiming he had no influence, but that the more important influences were US QE, the global slowdown and a remarkable recovery in the Irish economy (growth last year 4% plus) which has recaptured the confidence of global debt markets.  Perhaps I should have written "little thanks to the ECB" rather than "no thanks to the ECB".

How would you quantify/estimate Draghi's contribution to reducing the interest rate tariff on Ireland's new Sovereign debt issuance? Krugman makes much of the impact of Fed statements on future interest rate expectations in the US.  I'm not sure a see a similar ECB influence on Ireland's new debt instruments on Sovereign debt markets.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 04:42:48 PM EST
[ Parent ]
"and a remarkable recovery in the Irish economy (growth last year 4% plus) which has recaptured the confidence of global debt markets."

Yes? And the low spanish yields are caused by the astonishing spanish recovery?

And you can't complain about the nonexistence of alliances and now proclaim Ireland a special case.  

by IM on Fri Jan 16th, 2015 at 05:20:40 PM EST
[ Parent ]
"And you can't complain about the nonexistence of alliances and now proclaim Ireland a special case.  "

And why not? All countries are special in different ways - but they should build alliances where their interests coincide.

Yes Spain is behind Ireland in the economic cycle (my guess is by about 2 years) but it is recovering and I instanced two other factors as more important

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 05:30:43 PM EST
[ Parent ]
"How would you quantify/estimate Draghi's contribution to reducing the interest rate tariff on Ireland's new Sovereign debt issuance?"

90%.

by IM on Fri Jan 16th, 2015 at 05:24:07 PM EST
[ Parent ]
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 05:31:32 PM EST
[ Parent ]
That the interest rates of european governemt bond moved together the last years?
by IM on Fri Jan 16th, 2015 at 05:56:35 PM EST
[ Parent ]
I'm not an expert on this, but my understanding is they diverged radically once the crisis broke - in large part because the Euro had no lender of last resort, and the ECB lacked any credible or effective response to the crisis.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 06:05:02 PM EST
[ Parent ]
by IM on Fri Jan 16th, 2015 at 06:19:10 PM EST
[ Parent ]
Also coincides with QE and a lot of other factors.  You haven't demonstrated causality. But if you are arguing that 90% of convergence is due to ECB actions, do you also accept that 90% of prior divergence is due to ECB?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 06:29:09 PM EST
[ Parent ]
What other factors?

And I don't think the ECB caused the spread.

by IM on Fri Jan 16th, 2015 at 06:34:33 PM EST
[ Parent ]
The spread was only possible because the Euro had no central bank with a lender of last resort function and so effectively the Euro broke up into a number of national currencies with different interest rate tariffs maintaining nominal parity between them.  In 2012 The ECB pledged to buy bonds in unlimited quantities to keep a country in the euro and fixed that problem - rather too late to avoid a meltdown in most of the European periphery.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 06:51:23 PM EST
[ Parent ]
" In 2012 The ECB pledged to buy bonds in unlimited quantities to keep a country in the euro and fixed that problem - rather too late to avoid a meltdown in most of the European periphery."

Yes. Draghi acted. And now you want him to fire for doing his job.

Creates the wrong incentive,you know.

by IM on Fri Jan 16th, 2015 at 06:55:13 PM EST
[ Parent ]
It is part of a pattern of the ECB doing too little, too late, with the result that the recession has been far deeper, and far longer lasting than need have been the case - look at the US/UK with more proactive monetary policies.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 07:10:32 PM EST
[ Parent ]
Is the recovery perceptible by mere mortals, or is it all log-jammed at the top of Mt. Olympus as it is here in the US?
by rifek on Wed Jan 28th, 2015 at 12:57:57 PM EST
[ Parent ]
There's a real recovery in the economy that's been trying to happen for years: our lords and masters have been holding it back by austerity measures.  Demographics and so on are pretty good in Ireland.

There's also a GDP recovery, which is a different matter.

by Colman (colman at eurotrib.com) on Wed Jan 28th, 2015 at 01:48:13 PM EST
[ Parent ]
Glad to hear it.  Our lords and masters here are likely to be far more successful in holding it back.
by rifek on Wed Jan 28th, 2015 at 01:53:10 PM EST
[ Parent ]
"Unfortunately Ireland's national leaders have shown no interest in supporting Greece or any other Eurozone state in this crisis - preferring to gloat in Ireland's own relative success in exiting the bail-out and fearful of rocking the boat at the ECB.  "

You can replace Ireland with at least five other countries.

by IM on Fri Jan 16th, 2015 at 02:08:42 PM EST
Part of my reason for publishing the LTE here is to get a better sense of the state of debate in other Eurozone countries.  Certainly criticism of the ECB for its current actions (in stark contrast to it actions during the bail-out debacle) is almost absent from public discourse in Ireland  As is any attempt to make common cause with other net debtor nations within the Eurozone. Would you like to add a perspective from another Eurozone state?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 02:35:44 PM EST
[ Parent ]
"Certainly criticism of the ECB for its current actions (in stark contrast to it actions during the bail-out debacle) is almost absent from public discourse in Ireland "

Don't worry! The ECB is critiziesd very much for its current actions in Germany.

We won't let Signor Draghi turn our currency into the Lira. No, Sir!

See the problem?

by IM on Fri Jan 16th, 2015 at 02:45:42 PM EST
[ Parent ]
The German debate - from the right - is v. much covered in Irish media - to the point where it appears to be assumed that Germany has a de facto veto on any ECB policy initiative - much like the German Constitutional Court presumes to adjudicate on the legality of EU actions under EU treaties when their legality can only be adjudicated by the European Court.

In contrast, it is assumed that Greece has to do what it is told by he ECB if it wants to stay within the Eurozone.

(As an aside, the German Parliament Finance committee now gets to see the content of the Irish National Budget before it is presented to the Irish Parliament - and promptly leaks it to the media - much to the annoyance of the Irish Government.  There seems to be no sensitivity, in the German parliament and  public debate, to the degree of resentment building up at the perceived German takeover of the EU.  This is feeding Euroscepticism even in Ireland - where there really hasn't been any significant anti-EU sentiment before.  We do not want to provide even more fuel to anti-EU movements or is that part of the agenda in Germany?)

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 03:32:58 PM EST
[ Parent ]
 to the point where it appears to be assumed that Germany has a de facto veto on any ECB policy initiative

Weidmann has been outvoted for years now at the ECB. And has vocally complained abut that

And neither The ECB or even Weidmann is responsible that the Irish Time or the Independent on Sunday are a bunch of right wing idiots.  

And this budget episode: Isn't that the Irish government here to blame?

"In contrast, it is assumed that Greece has to do what it is told by he ECB if it wants to stay within the Eurozone."

I would look at the creditor countries. Syriza doesn't wants to quit the Euro, it wants a debt cut or something similar.

"to the degree of resentment building up at the perceived German takeover of the EU."

The most popular country on earth, right?

"  This is feeding Euroscepticism even in Ireland - where there really hasn't been any significant anti-EU sentiment before.  We do not want to provide even more fuel to anti-EU movements or is that part of the agenda in Germany?"

If only. No agenda, only drift.

by IM on Fri Jan 16th, 2015 at 03:51:03 PM EST
[ Parent ]
Well neither the Irish Times or the Irish Independent have published my letter to date, so you may have a point.

No the Irish Govt. is required to submit its proposed budget to the EU in advance under the post bail-out monitoring agreement, the EU passes it on to the German Government, which passes it on the the Bundestag Finance Committee which leaks it... for at least 2 years now

It's the drift I worry about - I'm not a conspiracy theorist.  We could be sleep walking into a near collapse of the EU/Eurozone because of its failure to guarantee even basic economic/social rights for its peoples.  Having parents who lived through Nazism and WW2 in Germany, I don't want to go back to a pre-EU era...  Come to that, I wouldn't want to go back to a Pre-EU Ireland either.

Taking the long historical view, the EU has been an extraordinary success story, so I am less than sympathetic towards those who play brinkmanship with it or fail to bring forward the vision of its founders.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 04:04:14 PM EST
[ Parent ]
You don't need a conspiracy theory to explain Germany's actions: 1) Merkel is clueless and actually believes her "household budget=sovereign budget" line; 2) her advisers are Austrian School prostitutes who are perfectly willing to use her for the benefit of their masters and at the expense of everyone else, and 3) the German interests that were originally pro-EU as a means of exporting the costs of reunification and overhauling the economy now believe they have strip-mined all they can from the arrangement and so are not terribly committed to EU survival beyond lip service.
by rifek on Wed Jan 28th, 2015 at 01:13:31 PM EST
[ Parent ]
I just looked: None of the board members of the Trichet era are still here.

So the current board should be punished for the sins of their predecessors?

by IM on Fri Jan 16th, 2015 at 02:31:33 PM EST
Trichet certainly had his failings, which included threatening to pull the plug on the Irish banking system if the Irish Government didn't fully bail-out even those bond holders who were NOT included in the almost blanket (and much too broad) Irish bank guarantee.  But my concern here is exclusively on the failure of the current ECB Board to meet its own targets.

It is you who seems to have a fixation on the Trichet era.

(For what its worth, I think Draghi is probably an improvement on Trichet, but he seems unable to carry a majority of the Executive Board with him, and so has been limited to "making noises" about QE to date without actually doing anything much.  Also, for what it is worth, I do not believe in personalizing politics or policies, and so I am calling for the dismissal of the ECB Board as a whole, without targeting individual members).

At the very least, I think the Performance of the ECB in the current crisis should be the subject of public debate, and certainly as far as Ireland is concerned, that is not currently happening. Again I ask: What has the European Parliament done to supervise the ECB - seeing the ECB refuses to cooperate with an Irish Parliamentary inquiry?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 02:51:02 PM EST
[ Parent ]
"Also, for what it is worth, I do not believe in personalizing politics or policies, and so I am calling for the dismissal of the ECB Board as a whole, without targeting individual members)"

I like to say: The Draghi ECB isn't the problem. But that is of course a simplification. I should say:

The majority of the governing council of the ECB has since ca. the appointment of Draghi pursued the right monetary policies.

And that I think is true and the one institution in Europe doing it's job shouldn't be punished for it.

I just think that monetary policies alone without supporting fiscal policies can only do so much.

That is also the opinion of e.g. Krugman and much stronger Richard Koo.

by IM on Fri Jan 16th, 2015 at 02:57:46 PM EST
[ Parent ]
As Krugman never tires of saying, Monetary policy can only do so much, especially when interest rates approach the zero bound. And yes Fiscal policy is much more important, and even less has been done at EU level.  But my letter simply isn't about that. That is a separate discussion.

My larger argument is that no Currency zone can be stable without a central bank performing the function of lender of last resort, targeting a broader range of economic indicators including employment, and having a stronger pan European regularity function of banks and shadow banking institutions (something which is now, belatedly, beginning to happen).  But again these are largely beyond the remit of the current Board, so there is little point in raising those arguments in the context of a short letter on the performance of the current board.

I don't think the ECB can claim much credit for reducing interest rates - it had no choice - and it does not target any exchange rates in any case -  which are a consequence of the Eurozones abysmal economic performance, not an inspired ECB initiative to address that problem. Finally, any unconventional measures, if they come, will be far to little and much too late if current indications are any guide.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 03:51:46 PM EST
[ Parent ]
"I don't think the ECB can claim much credit for reducing interest rates - it had no choice - "

It didn't? We know, Krugman knows, Draghi knows...

But does Weidmann knows? Does the faz? Does the Irish Times? the more nutty part of conservative economists?

by IM on Fri Jan 16th, 2015 at 04:12:27 PM EST
[ Parent ]
Just as the US's standing as a world power has been much reduced by its nutty tea party and neoconservative elements, it would be a pity if the EU were to be much reduced by a nutty tea party element in Germany (and the UK and a few other member states). I think the standard of public debate in the EU is generally much better than that and am saddened that you seem to be implying that a large part of German opinion is no longer susceptible to rational economic debate. (Personally I think those elements are always lurking in the undergrowth, and what has been lacking in recent years has been visionary leadership from the top which has created a power vacuum and the drift which you mention). Frau Merkel - I'm looking at you...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 04:27:16 PM EST
[ Parent ]
Inflation has been trending down for 18 months and the current ECB board has done nothing to arrest that deviation from target.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 16th, 2015 at 05:34:45 PM EST
[ Parent ]
What about their interest rate policy?
by IM on Fri Jan 16th, 2015 at 05:57:30 PM EST
[ Parent ]
That has to do with liquidity provision to the banking system, not with stimulating inflation (thought they believe it does - but the last year or so should have disabused them of that notion: inflation is a never and nowhere a monetary phenomenon).

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 05:00:59 AM EST
[ Parent ]
Since the Crash, economic policies on both sides of the Atlantic have been a destructive confusion of solvency problems with liquidity problems.
by rifek on Wed Jan 28th, 2015 at 01:26:40 PM EST
[ Parent ]
Frank, what's your opinion on this? Bank rescue could ultimately cost taxpayers €40 billion (The Irish Times, 16 January 2015)
He said many of the regulatory people he spoke to for his report The Irish Banking Crisis; Regulatory and Financial Stability Policy 2003-8 were "shattered" by what had happened.

They felt something had gone badly wrong, they weren't sure why, and not sure what they could have done differently. No one was going around saying "these things happen", he said.

...

Inquiry chairman Ciarán Lynch (Lab) asked about what happened to 1995 Central Bank rules that aimed to set credit concentration limits for banks.

Prof Honohan replied that he didn't know. He supposed that when the rules were introduced, the Central Bank "hadn't realised they would be so far away from what the banks were likely to want to do".

The rules were "on the books" but were considered "a mistake", he said.

...

He agreed with Deputy Pearse Doherty (SF) that the government didn't want to interfere with the banks, and it was not just the government, but the "whole regime".



A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 16th, 2015 at 05:39:46 PM EST
You are talking about a period when the Dept. of Finance employed no economists, where the banks were considered to be the best arbiters of their own business, where the Financial regulator was totally incompetent and asleep on the job, and where the Irish Central bank was a handy sinecure for ex civil servants looking for an easy life.  I knew their senior statistician whose chief accomplishments were his capacity for pints and his authorship of the odd book. Work consisted of reading the newspapers and going home at 4.00pm.  Politicians hadn't a clue and had no where to turn to for expert advice.

Prof. Patrick Honohan is actually a beacon of competence in a very mediocre sea - but he was an academic economist at the time.  Those v. few external economists who did sound the alarm bells were told by Taoiseach Bertie Ahern to commit suicide:
Ahern apologises for suicide remark - RTÉ News

Taoiseach Bertie Ahern has apologised for comments he made in a speech this morning in which he suggested that he did not know how people who engaged in moaning about the economy did not commit suicide.

Mr Ahern had been speaking about people who talk down the economy during his speech to the Irish Congress of Trade Unions conference (watch his complete speech here).

'Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don't know how people who engage in that don't commit suicide because frankly the only thing that motivates me is being able to actively change something,' he said.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 05:58:22 PM EST
[ Parent ]
Wasn't the main attack of the opposition parties in the 2007 election that the government wasn't fueling the housing bubble enough?

They demanded an abolition of the stamp tax or something.

by IM on Fri Jan 16th, 2015 at 06:05:14 PM EST
[ Parent ]
Yes - their solution to the problem of soaring house prices, which were putting even small houses in poor locations beyond the reach of first time buyers, was to reduce the Government tax on those purchases.  I suspect that that is the sort of electoral promise which would soon have been broken in office -as the Government depended on such windfall tax receipts to fund ever growing public expenditure. In the event Fianna Fail won that election, so we will never know what the opposition parties would have done had they won office.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 06:24:07 PM EST
[ Parent ]
Berlin in constant fear ECB will be lender of last resort

The European Central Bank faces another moment of truth as its governors debate whether to buy up the sovereign bonds of euro zone countries to avert a deflationary spiral. At issue still is the attitude of the German faction in the bank, which is resolutely opposed to such moves. But what explains this stance?

The stock response is that German hypersensitivity over the use of central bank printing presses can be traced right back to the country's painful encounter with hyperinflation in the 1920s, when the Weimar Republic printed more and more banknotes to finance expenditure.

Analysts insist there is more to the story than that, although the printing of money to finance expenditure (monetary financing) is anathema in Germany. Such concerns were at the heart of the independence granted to the Bundesbank when it was set up in 1957.

--snip---

The institution was a success. It was not for nothing that the ECB's independence was enshrined in European law, together with a prohibition on monetary financing.

These principles carry huge force, all the more in Germany. Former ECB chief Jean-Claude Trichet cast himself as an ardent defender of the bank's freedom of action, but observers said he had to be more radical in his language because he was French. Jean-Claude Juncker, who leads the EU Commission, once said of Trichet that "he speaks of the need for an independent central bank in an almost erotic manner".

Whatever about that, it is clear that many of the ECB's interventions since the outburst of crisis in 2007 have run into German resistance.

Axel Weber, the Bundesbank chief who was being lined up to succeed Trichet, left in protest at the ECB's first forays into bond markets. The ranking German on the ECB executive board, Jürgen Stark, soon followed.

In 2012, Weber's successor, Jens Weidmann, voted against the scheme in which the ECB pledged to buy bonds in unlimited quantities to keep a country in the euro. The promise brought the most acute phase of the debt emergency to a halt, a good thing. But the Bundesbank made a point of publicising its deep displeasure at the move.

Price stability is a concern here, yet there is more. In a 2012 paper for the European Council on Foreign Relations, analysts Sebastian Dullien and Ulrike Guérot traced elements of the wider German response to the debacle - including harsh fiscal retrenchment, punitive bailout terms, debt limits, etc - to the economic theory of "ordoliberalism" which was in vogue in the country from the late 1940s to the mid-1960s.

The theory, which opposes intervention into the normal course of the economy, rejects the use of expansionary fiscal and monetary policies to stabilise the business cycle in a recession.

"While ordoliberalism nowadays is no longer an important academic current in Germany, most economists have at some point in their career been influenced by ordoliberalist ideas," wrote Dullien and Guérot. This, in turn, feeds into the "neo-classical" consensus among mainstream economists in Germany, and in particular attitudes towards economic policy co-ordination, external imbalances, budget consolidation and bailouts.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 05:45:40 PM EST
"Whatever about that, it is clear that many of the ECB's interventions since the outburst of crisis in 2007 have run into German resistance."

That is what I am talking about and that is not "nothing".

by IM on Fri Jan 16th, 2015 at 06:00:24 PM EST
[ Parent ]
It's not nothing, and neither is it sufficient given the structural imbalances and huge levels of unemployment in the Eurozone. You seem to be painting the recent economic mismanagement of the Eurozone as a success. No, the ECB wasn't necessarily the worst offender, but my letter only deals with the ECB response to the crisis, and that, for a variety of reasons mostly to do with the limitations of its mandate and German opposition has been less than fully effective.  There has been huge long term destruction of economic capacity in the EZ, and any recovery now will be from an unnecessarily low base.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 06:15:48 PM EST
[ Parent ]
"You seem to be painting the recent economic mismanagement of the Eurozone as a success. "

I say that the ECB has been since 2011 or so the only actor doing it's job. But monetary policies have their limits.

by IM on Fri Jan 16th, 2015 at 06:29:12 PM EST
[ Parent ]
Berlin in constant fear ECB will be lender of last resort
Hans-Werner Sinn of the Ifo economic institute claimed this week that deflation risk was "just a pretext for quantitative easing" to hammer out a bailout programme for the bedraggled southern fringe of the euro zone. Such an endeavour would recast the ECB as lender of last resort, the very thing that German economic puritans have feared since crisis struck.

And just what is so wrong about seeking to avoid deflation -which is no longer a "risk" - it has arrived - and with enabling southern EZ members to recover?  It seems Monetary policy still some way to go if economic stability is to be achieved in the EZ.

Personally, I think low oil prices and the devaluation of the Euro - caused in part by the ending of QE in the US - will have a greater effect than anything the ECB will do, but that is not to say that what the ECB can still do - and has not done to date - is nothing.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 16th, 2015 at 07:07:30 PM EST
[ Parent ]
Rule Nr. 1: If Sinn is complaining, something is going right. In this case the ECB.
by IM on Fri Jan 16th, 2015 at 07:21:53 PM EST
[ Parent ]
Davos and the fear of Darth Vader
The problem is that the average citizen does not understand the consequences of what deflation is, argued Anthony Scaramucci, founder and Co-CEO of the New York-based investment firm SkyBridge Capital.

"It's an annihilation. It's the Darth Vader death star outside of the atmosphere of the earth, shooting a laser to blow up the world's economy."

That may be overdoing it, says Harvard economist Kenneth Rogoff. But he agrees that the central banks appear to be in over their head.

" I think they have been a little surprised that they have trouble creating inflation. I don't think they knew that" [...]

"If you need to know how to get high inflation, come to Russia," Arkady Dvorkovich, a Russian Deputy Prime Minister, told a laughing audience at the World Economic Forum.


by das monde on Fri Jan 23rd, 2015 at 02:55:13 AM EST
[ Parent ]
It is a tribute to the power of zombie ideas that guys like Rogoff still get invited to places like Davos after Krugman made him the laughing stock of real world economics...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 23rd, 2015 at 06:50:22 AM EST
[ Parent ]
Krugman would bring the Davos party down...
by das monde on Fri Jan 23rd, 2015 at 08:34:21 PM EST
[ Parent ]
Kenneth Rogoff....agrees that the central banks appear to be in over their head.

He should know the symptoms.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 23rd, 2015 at 09:59:07 AM EST
[ Parent ]
That Dvorkovich thinks that inflation is Russia's problem speaks volumes to the likelihood of Russia getting back on track any time soon.
by rifek on Wed Jan 28th, 2015 at 01:35:44 PM EST
[ Parent ]
See The ECB's Battle Against Central Banking (Brad DeLong, 2011)

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 04:59:35 AM EST
[ Parent ]
"When the European Central Bank announced its program of government-bond purchases, it let financial markets know that it thoroughly disliked the idea, was not fully committed to it, and would reverse the policy as soon as it could. Indeed, the ECB proclaimed its belief that the stabilization of government-bond prices brought about by such purchases would be only temporary.

It is difficult to think of a more self-defeating way to implement a bond-purchase program. "

As seem from today - wasn't he wrong?

by IM on Sat Jan 17th, 2015 at 06:27:25 AM EST
[ Parent ]
Well, inflation cratered. I guess that is what Brad Delong is saying.  
by rz on Sat Jan 17th, 2015 at 06:42:20 AM EST
[ Parent ]
interested rates cratered too. Doesn't look so self-defeating to me.  
by IM on Sat Jan 17th, 2015 at 07:51:13 AM EST
[ Parent ]
The ECB raised rates in 2011 after DeLong wrote that.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 08:02:10 AM EST
[ Parent ]
I was talking about the yields son sovereign european bonds. And I never denied that the Trichet era ECB was nuts.
by IM on Sat Jan 17th, 2015 at 09:11:54 AM EST
[ Parent ]
The yields on sovereign Euro bonds are not down because of any market action by the ECB, except possibly for Draghi's "whatever it takes" speech and OMT which the German establishment including the Bundesbank has done everything in their power to undermine.

On this note, since you know about German law, I would be interested in a diary on the implications of the latest ECJ advocate general opinion on the BvG decision on OMT.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 09:18:11 AM EST
[ Parent ]
The yields on sovereign Euro bonds are not down because of any market action by the ECB,

what caused the fall then?

"except possibly for Draghi's "whatever it takes" speech and OMT"

A very successful bluff.

On the legal situation: I don't know. I am not much interested in this sort of nonsense. And we should at least wait if the ECJ follows the general advocate.

There is tendency of the German Constitutional Court to bark but not bite in european matters. Perhaps they will take the concessions to judicial oversight in the general advocates opinion, uses that to save face and climb down. As they have done before.  

by IM on Sat Jan 17th, 2015 at 09:43:15 AM EST
[ Parent ]
The yields on sovereign Euro bonds are not down because of any market action by the ECB,
what caused the fall then?
"except possibly for Draghi's "whatever it takes" speech and OMT"
A very successful bluff.
Bond yields fall when prices go up. Prices go up when there is demand for bonds. Since the ECB has not been buying bonds it must have been that private investor appetite for holding Euro bonds has gone up. In the case of German bonds this is because of their safe haven quality and also apparently the Swiss National Bank has been buying them up. But in the case of peripheral countries private demand for bonds must be a result of a perception that the euro crisis had subsided. The OMT bluff may have something to do with it, but how much is hard to quantify. But it only took a couple of idiot moves by Antonis Samaras to crash Greek bonds again, for example, so private investors are still on a hair trigger.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 02:07:49 PM EST
[ Parent ]
"Bond yields fall when prices go up. Prices go up when there is demand for bonds"

Seeking refuge in truisms?

" In the case of German bonds this is"

Come on, nobody is talking about german bonds here, who were already in 2011 very cheap.

"But in the case of peripheral countries private demand for bonds must be a result of a perception that the euro crisis had subsided. "

At same point perception turns into reality.

by IM on Sat Jan 17th, 2015 at 02:28:55 PM EST
[ Parent ]
"Bond yields fall when prices go up. Prices go up when there is demand for bonds"

Seeking refuge in truisms?

No, just pefacing my claim that there has been no contribution to bond demand from the ECB.

You could, however, argue that the TLTROs encouraged private banks to load on peripheral Euro bonds which they could then repo for cash at the ECB discount window.

"But in the case of peripheral countries private demand for bonds must be a result of a perception that the euro crisis had subsided. "

At same point perception turns into reality.

And, as I pointed out about Antonis Samaras, market perception can be notoriously fickle especially if the politicians are idiots.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 02:44:19 PM EST
[ Parent ]
The yields on sovereign Euro bonds are not down because of any market action by the ECB,

what caused the fall then?

People call it "open mouth operations" as opposed to "open market operations".

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Jan 18th, 2015 at 04:34:47 AM EST
[ Parent ]
As seen from today, have you looked at Greece lately?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 06:43:34 AM EST
[ Parent ]
You mean compared to the splendid situation of Greece back in 2011/2010?
by IM on Sat Jan 17th, 2015 at 07:39:05 AM EST
[ Parent ]
Euro Crisis over, 2015 edition.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 08:02:26 AM EST
[ Parent ]
Has anyone said that?

stop fighting straw men.

I am still talking about the claim that the ECB board is the problem and should be summarily sacked. That is just nonsense.

by IM on Sat Jan 17th, 2015 at 08:38:43 AM EST
[ Parent ]
Well, I'm not talking about that claim. I'm responding to things people say on the comments.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 09:01:27 AM EST
[ Parent ]
I suggest taking a look to this exasperated post by Ashoka Mody on Bruegel: The ECB's balance sheet, if needed (December 3, 2014). Also, The nod-and-wink lender of last resort
how unlimited are "unlimited" purchases of sovereign bonds, and can the ECB legally accept losses on par with private creditors?
(13th January 2015)

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 06:47:27 AM EST
[ Parent ]
The first Mody post was noted by afew.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 06:48:19 AM EST
[ Parent ]
Mody is moody about the ECB doing to much, especially as lender of last resort to banks and as a buyer of sovereign bonds. Also likes to obsess about target 2 like an illiterate.

Regarding the legal situation and OMT - the ECB can't accept a voluntary debt cut, that much is true. But then OMT was a bluff anyway.

by IM on Sat Jan 17th, 2015 at 07:54:42 AM EST
[ Parent ]
No, he's Mody is moody (har har) about doing too little:
except for keeping zombie banks alive.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 08:01:23 AM EST
[ Parent ]
except for keeping zombie banks alive.

Yes, that is the problem: he complains about the ECB doing to little and says that everything the ECB has done was wrong. He should pick his poison.

by IM on Sat Jan 17th, 2015 at 08:36:50 AM EST
[ Parent ]
I pick German Euro exit.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 17th, 2015 at 09:02:19 AM EST
[ Parent ]
No problem.The next board meeting will decree it.  
by IM on Sat Jan 17th, 2015 at 10:19:15 AM EST
[ Parent ]
I am no expert in this area and you guys have educated me on a number of issues I wasn't clear on. On balance I am now inclined to agree with IM that if you are looking for a culprit for the mismanagement of the EZ, then the ECB executive Board is the wrong target.

I am still perplexed that the National Central Bank Governors of net debtor states haven't done more to act in concert and formulate a more expansionary monetary policy and that Germany and its allies have been so successful in blocking or delaying action.  

If you look at the performance of the ECB Governing Council as a whole, it compares unfavourably with the FED and the Bank of England, but that is partly by design (under the Treaties) and thus beyond the scope of the Council, and partly a consequence of German led resistance to more pro-active monetary policies.

It galls me that those opposed to (say) QE can be so sanguine about the ECB failing to meet its one and only target and still go on about the risk of inflation, as if that should be the number one policy concern at a time of huge youth unemployment.

Krugman has taken similar issue with the deficit hawks and inflationistas on the right of the US political spectrum who basically want to destroy the welfare state and will change rationals at will to suit that one policy objective.

It saddens me that the "social Europe" which used to include a concern for social solidarity and regional cohesion has now been replaced by a Darwinian "may the devil take the hindmost" market ethic.

The EU is, and should be, more than a facilitator for globalization and is in danger of disintegrating in the face of nationalist extremist elements preying on the weakest who the EU has left behind.

Part of the solution may require Treaty change - or Germany leaving the EZ - but I believe a lot more and should be done to embolden the ECB to take more decisive and timely action in the face of the ongoing crises.

The EZ will continue to under-perform at a global level until and unless these issues are addressed, and if that requires a radical overhaul of the ECB or a German exit, then so be it.

The first step, however, is to stimulate debate in member states and the EP to encourage National Governments and Central bank Governors to take a more robust stance on monetary policy in general.  That involves a process of economic education, and I thank you for your contribution to that process.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Jan 17th, 2015 at 11:34:18 AM EST
Clearly, it is the EC that needs to be sacked - if only!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jan 18th, 2015 at 12:05:31 AM EST
[ Parent ]
Russia may lift food import ban from Greece if it quits EU - Russian agriculture minister

Russia may lift its ban on food imports from Greece in the event it quits the European Union, Russian Minister of Agriculture Nikolai Fyodorov told a news conference in Berlin on Friday.

Fyodorov is leading an official Russian delegation to the International Green Week public exhibition for the food, agriculture, and gardening industry.

"If Greece has to leave the European Union, we will build our own relations with it, the food ban will not be applicable to it," he said.

by das monde on Sat Jan 17th, 2015 at 07:35:41 PM EST
Are we seeing further evidence of Russo-German competition for leadership of Europe? Or is this just tit-for-tat for EU actions in Ukraine?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Jan 18th, 2015 at 08:20:16 AM EST
[ Parent ]
As I see it, he's just stating the obvious: Having at some point been a member of the EU should not in and of itself prejudice your relationships with the rest of the world.

Of course he's delusional if he thinks Greece is on the verge of leaving the EU...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jan 18th, 2015 at 08:28:08 AM EST
[ Parent ]
I read him as saying a bit more than that:"If the EU is messing you around, come to us and we will give you preferential trading relationships.  We won't hold this Cyprus thing against you, our Oligarchs need a place in the sun and I hear your property market is cheap.  Of course you will have to stop this EU sanctions nonsense too, but we will offers our brothers in Syriza safe haven if you do decide to leave or are kicked out".

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Jan 18th, 2015 at 10:08:52 AM EST
[ Parent ]
And, of course, the Greek Orthodox Church, the second Rome, is the 'mother' of the Russian Orthodox Church, the third Rome. And all that atheist stuff is back in the 20th Century. Plus, Russia could easily solve Greece's oil and gas problems. They could have a very profitable trade relationship without reference to the Euro or the US$. Russia could lay pipelines through the Black Sea and have oil and gas terminals in Greek territory. With a possible extensions across the Adriatic the whole Ukraine gas transit fiasco could become moot, though it would take a while to accomplish.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jan 19th, 2015 at 04:53:01 PM EST
[ Parent ]
Having read the discussion, I think sacking the ECB board is a good demand.

Firstly, it is a good demand, because the ECB is still the enforcing arm of the austerity regime that is strangling economies. It was established as the enforcing arm with the threath of creating bankcrisis that the state can not solve while in the euro, thus forcing the state to de facto leave the euro. The ECB has as far as I know not renounced the threath if the states would step out of line and abandon austerity.

Say that Syriza wins the election in Greece, nationalises a bank or starts a new one, borrows all the euro the state needs from that bank which in turn borrows it from ECB. Now Greece can fund itself with a funding cost that is the operation cost of said bank plus cost of borrowing from ECB. Will ECB then cooperate or will it sever the Greek banks from the euro?

Secondly, it is also a good demand because it highlights the lack of relevant body to sack the ECB board and their general position of unelected and unsupervised power. I do hope the Irish Parliamentary inquiry finds some sympathetic MEPs to channel their questions through, the more supervision the EP establishes over ECB, the better.

Thirdly, it is a good demand because the ECB needs to feel heat from the anti-austerity camp to make them less prone to cave in to pro-austerity demands.

Since none of us have the power to actually sack the ECB board, the question of wheter it would be wise to sack them right now is less important.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Jan 18th, 2015 at 10:05:40 AM EST
My understanding is that, if Syriza wins and declares something unorthodox with respect to Greek debt, the ECB can be expected to pull the plug overnight on the Greek banks, by no longer honouring Greek government bonds for repo.

This, presumably, would require an instruction from the European Council, as the ECB isn't a political body.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Jan 19th, 2015 at 10:48:47 AM EST
[ Parent ]
The ECB as far as I know is independent and does not require instructions. So I think such a decision would be taken by the board or the governing council of the ECB.

So I don't expect a European Council decision as such, but I would expect the ECB to make sure they had at least the big players backing them before throwing Greece out.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Jan 21st, 2015 at 04:41:46 AM EST
[ Parent ]
Is there provision in the Treaties for throwing anybody out? Can Greece take legal action against ECB if it deems it to have exceeded its powers under the Treaties?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jan 21st, 2015 at 08:31:58 AM EST
[ Parent ]
Can Greece take legal action against ECB if it deems it to have exceeded its powers under the Treaties?

Sure. After all that is what the german constitutional court is doing right now in regard to OMT. But as thsi example shows, that needs time.

by IM on Wed Jan 21st, 2015 at 10:25:43 AM EST
[ Parent ]
Yes but if the threat or actuality of legal action stays the ECB'a hand, any delay could work to the advantage of Greece.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jan 21st, 2015 at 02:05:12 PM EST
[ Parent ]
A, my point was that in that delay the ECB kills Greece.

But Syriza has toned their demands already so down, that perhaps there will be no confrontation.

by IM on Wed Jan 21st, 2015 at 04:16:45 PM EST
[ Parent ]
I don't think there is a provision as such but the way eurogreen describes:

the ECB can be expected to pull the plug overnight on the Greek banks, by no longer honouring Greek government bonds for repo.

Only needs for the ECB to have the power to decide what to accept for repo, which I think they have, and they certainly has it in the short term. Then Greece has to either use euro without banks or issue currency. This has generally been interpreted as being forced out, but with all idiotic things that happen, perhaps a ND-PASOK government would just declare payment systems a luxury that can no longer be afforded and order everybody to pray harder for the return of the confidence fairy.

I realise now also that ECB has another way to block banks, they are the supervising authority in the new bank union. So they could (in this example) target only the new bank owned by the greek state. Or at least I think so.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Jan 22nd, 2015 at 09:08:28 AM EST
[ Parent ]

by das monde on Sun Jan 18th, 2015 at 06:44:26 PM EST
by das monde on Tue Jan 20th, 2015 at 09:40:33 AM EST
So has the ECB redeemed itself by launching a QE programme bigger than many expected and in the teeth of German opposition? It could be argued that it has now done all that could be expected of it.  The counter-argument is that it has done so several years too late and after much unnecessary and irreversible damage has been done.

Nevertheless would a resignation call now serve any useful purpose?  Would it not strengthen those forces seeking an even more restricted role for the ECB?

On balance I feel we now have no choice but to wait and see whether QE has the desired effect and raises growth and inflation rates. When combined with much reduced oil prices, reduced interest rates and an even further devalued Euro, you have to hope that the EZ economy cannot but make a belated recovery.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 23rd, 2015 at 06:21:15 PM EST
Nevertheless would a resignation call now serve any useful purpose?  Would it not strengthen those forces seeking an even more restricted role for the ECB?

To repeat myself: yes

by IM on Fri Jan 23rd, 2015 at 06:58:03 PM EST
[ Parent ]
Frank Schnittger:
So has the ECB redeemed itself by launching a QE programme bigger than many expected and in the teeth of German opposition? It could be argued that it has now done all that could be expected of it.  The counter-argument is that it has done so several years too late and after much unnecessary and irreversible damage has been done.

Renzi is crowing how it was his schmoozing charm diplomatic pressure that persuaded this to happen during Italy's praesidium, the man who beat down austerianism with his bare hands and melted Angie's stony heart.

Hard to imagine Europe without Italy sometimes...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Jan 23rd, 2015 at 08:56:09 PM EST
[ Parent ]
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Jan 24th, 2015 at 05:30:36 AM EST
[ Parent ]
Why Iceland Should Be In The News, But Is Not
As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example.
by das monde on Fri Jan 23rd, 2015 at 08:37:52 PM EST


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