by Carrie
Tue May 18th, 2010 at 03:18:11 AM EST
From the depths of Germany's tortured psyche comes the following delusional feature: The Hollow Euro: Specter of Inflation Haunts Europe (05/17/2010)
If Europe's single currency is really to be saved, fundamental reforms have to follow the emergency bailout by euro-zone members. The biggest danger comes, however, from the European Central Bank, which has given up its role as the protector of price stability. The risk of inflation is increasing. By SPIEGEL staff.
The really interesting thing is that the article blatantly contradicts the following interview with Trichet:
A 'Quantum Leap' in Governance of the Euro Zone Is Needed (05/15/2010)
In a SPIEGEL interview, Jean-Claude Trichet, the 67-year-old president of the European Central Bank, discusses the largest financial rescue package in the history of Europe, the role and importance of speculators in the euro crisis and the weakness shown by politicians in the euro zone member states.
The wonderful thing is that you can deconstruct Spiegel's insanity with Trichet's only slightly less insane utterances, which still bear their own deconstruction.
The Spiegel feature starts with the following picture caption:
A Hungarian money changer corrects the sale price of foreign currencies in Budapest: The euro zone is running the risk of inflation.
You have to admit the logic is unassailable. By combining non-sequitur with proof by assertion Spiegel's argument lacks any handle one could use to retort. It's brilliant. But let Trichet answer the charge himself:
SPIEGEL: The Germans react particularly sensitively because the Bundesbank had always refused, even in times of crisis, to purchase government bonds. Can you understand these specific German concerns?
Trichet: I fully understand the particular sensitivity of my German friends. But facts are facts: Inflation in Germany has never been as low as it has been over the past 11 years. The German fellow citizens can see that the euro has indeed been a good store of value over time.
Bonds? Did Spiegel say "purchase bonds"?
Now the guardians of the euro are purchasing government bonds from troubled countries like Greece, Spain and Ireland -- thereby breaking a taboo that the ECB has always tried to respect. The central bank, which has always prided itself on its independence, has capitulated to the wishes of the politicians.
But are they? I derive no small amount of pleasure from seeing insane inflation hawk Trichet getting so much grief from even more insane people, such as Spiegel and Axel Weber's merry band of monetarists
SPIEGEL: In the course of the crisis, the governing council of the European Central Bank decided, for the first time, to buy the government bonds of troubled EU countries -- thus breaking a taboo. The president of Germany's central bank, the Bundesbank, Axel Weber, his Dutch counterpart and the ECB's chief economist, Jürgen Stark, voted against this move. Seldom is there so much dissent within the highest decision-making body for the euro.
Trichet: As you know, I never comment on individual views. Our measures are explicitly authorized by the (EU) treaty. We are not embarking on quantitative easing. We are helping some market segments to function more normally. And, as I said, we will take back all the additional liquidity that we will supply in our Securities Markets Program.
Oh, so that's authorised by treaty. Now, is it?
SPIEGEL: In an interview he gave to SPIEGEL a few months ago, Jürgen Stark, the ECB's chief economist, said that the ECB was not permitted to buy government bonds. Who is right?
Trichet: I have already said that this is explicitly authorized by the treaty
So, is Jürgen Stark ignorant or malicious?
Migeru:
This is the original discussion here on ET of what the ECB can or cannot do, had on February 11Article 123
(ex Article 101 TEC)- Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as "national central banks") in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
- Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.
Okay, so the ECB can intervene in the secondary market to prevent price speculation on Euro sovereign debt. What the ECB cannot do is fund a public debt issue, and that makes some sense from certain ideological perspectives.
To which JakeS perspicaciously repliedBecause by having passed through the bid-ask spread of a major investment bank, it is suddenly converted from a loan into a monetary instrument?
But in any case, this is all the fault of the evil French and their love for soft money (after all, they did devalue the Franc once)
Still, the price for this bailout is high -- possibly too high. The events on that dramatic weekend in Brussels marked the birth of a gigantic European transfer union, where previously unthinkable sums of money are made available to rescue southern euro-zone members. But over and above that, a number of determined politicians under the leadership of French President Nicolas Sarkozy have managed to undermine the independence of the European Central Bank (ECB).
Ever since the launch of the euro over 11 years ago, the French have been annoyed that the common currency generally adheres to German principles. While the French central bank is traditionally viewed as an executive organ of government growth and employment policies, the European Central Bank is politically independent and exclusively committed to the goal of achieving price stability, just like the Bundesbank in postwar West Germany.
Over the past few years, Paris has repeatedly tried to bring the European monetary authority to heel. French government representatives complained at times about interest rates that they felt were too high. At other times, they called for a devaluation of the euro to boost their own exports. Their requests were never granted. Until recently, the ECB enjoyed a reputation for combating inflation even more resolutely than the legendary guardians of the German mark.
All of that has changed since last week. Under the mounting pressure of waves of speculation against the euro, German Chancellor Angela Merkel has allowed herself to be talked into a bailout package that is nothing less than a general overhaul of the monetary union according to the agenda set by the French. In addition to letting the European Commission use the central bank to achieve its own aims, the Germans have accepted the fact that several monetary policy principles are being cast by the wayside. The central bankers are making their printing presses available to finance government loans. They have accepted that European countries are liable for the debts of individual states. They are putting more money in circulation, even though there is already so much liquidity on the markets that a number of experts anticipate that this will soon trigger a rise in inflation.
Never mind that Trichet debunked this nonsense two days earlier (but he's French, what he says can't be trusted)
SPIEGEL: The general public has gained the impression that the governments pressured the ECB to take this decision. That would be an appalling signal in terms of its independence and credibility.
Trichet: That is ridiculous! We take our decisions completely independently and have a track record of taking positions contrary to those of the heads of state and government -- in 2004 in refusing to decrease rates, in 2005 in increasing rates against their wishes, and throughout this period in fiercely defending the Stability and Growth Pact including defending it against the German chancellor of the time. Just who has been weak over the past few months? It was not the ECB. The governments with their high debts were weak. Was I weak myself when I explained to all floor leaders in the Bundestag (Germany's federal parliament) just why it was important to decide rapidly? Was I weak when I informed the heads of state and government in full independence that the situation was grave and that they had to live up to their responsibilities? We took our decision on Sunday in full independence.
Independence, independence, independence!
SPIEGEL: Thus far, the ECB has been strong and independent because it had repeatedly rejected demands from the political domain for lower interest rates or too expansionary a monetary policy. You have now consented for the first time.
Trichet: We have consented nothing to the heads of state and government. We always take our decisions taking into account only our own assessment of the situation and not the "recommendations" of governments, markets or social partners. We decided on August 9, 2007 to supply €95 billion of liquidity in a few hours because our money market was being disrupted. And I could give many such examples. As I have already said, if there has been any direction of influence, it has been more in the opposite direction, from the ECB to governments, when making recommendations to them. And, let me tell you that those who took very significant responsibilities were those not applying the spirit and the letter of the Stability and Growth Pact. And neither were those who did not carry out their surveillance as they should have, and as we constantly asked them to do.
We are Der Spiegel who says
Ni!SPIEGEL: What makes you so sure that Europe's top politicians will not now use the ECB as a permanent money printing machine?
Trichet: Again, we will take all the additional liquidity that we are bringing into the system back out. Our monetary policy stance is unchanged. We have never hesitated for one second to take the decisions needed in order to ensure price stability, without taking into account any pressure groups.
But forget about
unseriös Trichet, what do the really serious people think?
There is a growing fear that a gigantic wave of debt will soon roll over Europe and the euro-zone countries will deal with it as elegantly and unscrupulously as they have so often done in the past -- by allowing inflation to reduce their debts. These concerns are shared by more than just the notorious paper money skeptics who predict the return of hyperinflation.
Even serious experts like Joachim Fels, a top economist at Morgan Stanley, have no qualms about addressing the likelihood of such a development. Although it is an extreme scenario, says Fels, it certainly cannot be dismissed out of hand. At the very least, the central bank can apparently "no longer resist the temptation to use inflation to reduce the mounting public debt."
Max Otte, a professor from the German city of Worms who foresaw the crash of the financial markets before others, sees the supposed stability union as already being well on the road towards becoming an inflation union. According to Otte's calculations, annual price increases of roughly 7 percent would be enough to reduce assets by one-half in just under 10 years. "We are eroding the euro from within," says the economist, "all the signs point towards inflation."
You know, it's much better to allow this mountain of debt to crush our economy. Deflation and unemployment are good, if only to punish those swarthy
Untermeschen for borrowing from German banks in order to buy German cars.
Anyway, the interesting thing is how proud Trichet is of himself for his single-minded determination to keep inflation pegged at 2% come Hell or High Water or 25% unemployment in the periphery of the EU such as Spain or Greece or the Baltics.
SPIEGEL: Mr. Trichet, how have you been sleeping these last few days?
Trichet: I always sleep well!
SPIEGEL: You haven't had any nightmares?
Trichet: No.
No, he's sleeping like a baby in the face of what he himself describes as "the most difficult situation since the Second World War -- perhaps even since the First World War".
SPIEGEL: Allegedly, even Asian central banks have lost confidence in the euro. And they are key players.
Trichet: A currency which keeps its value fully in line with its definition of price stability -- with annual inflation rate of less than 2 percent, close to 2 percent -- over almost 12 years is a currency which inspires confidence.
Spiegel: "I concern-troll you!"; Trichet: "Lalalala the standing ovation I'm giving myself for my successful inflation targetting doesn't let me hear you".
SPIEGEL: Thus far, the ECB has been strong and independent because it had repeatedly rejected demands from the political domain for lower interest rates or too expansionary a monetary policy. You have now consented for the first time.
Trichet: We have consented nothing to the heads of state and government. We always take our decisions taking into account only our own assessment of the situation and not the "recommendations" of governments, markets or social partners. We decided on August 9, 2007 to supply €95 billion of liquidity in a few hours because our money market was being disrupted. And I could give many such examples. As I have already said, if there has been any direction of influence, it has been more in the opposite direction, from the ECB to governments, when making recommendations to them. And, let me tell you that those who took very significant responsibilities were those not applying the spirit and the letter of the Stability and Growth Pact. And neither were those who did not carry out their surveillance as they should have, and as we constantly asked them to do.
Trichet: with steadfast determination comes power and I'm steadfast as heck!
