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# the prohibition of monetary financing (Article 123 of the Treaty on the Functioning of the European Union),

No QE?

Specifically, what is prohibited is direct lending to public institutions, including buying bonds at issue. Interested parties such as ECB Chief Economist Jürgen Stark have wrongly claimed that the ECB was in violation of the treaty for buying the bonds in the secondary market.

If you want, it means no QE for the public sector. There is nothing in the EU treaties or the ECB's internal regulations to restrict QE for the benefit of the private sector, as long as it doesn't conflict with the inflation mandate.


# the prohibition of privileged access to financial institutions (Article 124 of the Treaty on the Functioning of the European Union),
Banks should get no tax payer guarantees?
All the EU prohibitions in this area apply to the public sector, not to the private sector. So "no privileged access to financial institutions for public entities". Look at the context: it's a discussion of government fiscal policy.


# the Stability and Growth Pact (secondary legislation based on Articles 121 and 126 of the Treaty on the Functioning of the European Union).

Here is the key. In neoliberalism "growth" does not mean "wealth creation." It means credit creation. And wealth distribution by asset price inflation.

Further, the SGP only constrains public finances. But if you constrain government deficit to 3% and you have countries running primary deficits in excess of 3%, the difference must come from private deficits. The result of the GSP is necessarily a private debt bubble. Or, if that is prevented as well, a recession.

Also, the only way to reduce a promary deficit is through import substitution or other industrial policy forbidden to EU member states under the "illegal state aid" rules. Only the EU as a whole, though structural funds, could legally carry out such an industrial policy. But structural funds come out of the EU budget which is roughly 1% of EU GDP. Even if all of that were directed to reducing primary deficits, it would not be nearly sufficient.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue Apr 12th, 2011 at 04:22:28 AM EST
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