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Review our cookies information for more details This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Review our cookies information for more details Charlemagne European politics * Previous * Next * Latest Charlemagne * Latest from all our blogs The ECB and the euro Too central a banker? Sep 7th 2012, 14:49 by A.L.G. | BRUSSELS * * Tweet WHEN European leaders declare that they will do whatever is necessary to protect the euro zone, most people just yawn. But when Mario Draghi, president of the European Central Bank, said the same in July, everybody took notice. This week plaudits (and some protests) have been showered on Mr Draghi after he confirmed on September 6th (over the explicit objections of Germany's Bundesbank) that the ECB would resume buying the bonds of troubled countries—on strict condition that stricken countries submit to formal, externally monitored reform programmes. (The details are here, the transcript of the press conference is here and the assessment of my fellow Economist blogger is here). Often in the crisis the ECB has appeared to be the only thing standing between the euro and the abyss. This has brought it ever greater influence. The proposed new banking supervisor for the euro zone will be an offshoot of the ECB (see my column this week, Eurobankingfragilistic). Moreover, the ECB's officials are part of the troika that monitors and enforces countries' compliance with their bail-out conditions. And when it comes to the future of the euro zone, Mr Draghi has become the most explicit of the “four presidents” (of the ECB, the European Council, the European Commission and the Eurogroup of finance ministers) who are drafting a “road map” for future integration (their first report is here) All this raises a question: is the ECB becoming too powerful? Is it straying too far from a central banks’ role of setting interest rates and controlling inflation? Is it becoming too overtly political? Figures close to the ECB argue that, at a time when Europe is confronting its greatest economic crisis since the second world war, European institutions must respond with the imperfect means at their disposal. The European Union, or even the euro zone, is not a federal state. So it is up to the most integrated parts of it to show leadership. That the ECB should take such a central role is in many ways a reflection of the failure of the euro-zone’s political leaders to bring the debt crisis under control in more than two years of emergency summits and bail-outs. There reasons are many: publics are reluctant to give up sovereignty and share risks to the degree needed to stabilise the currency; parliaments are reluctant to give out taxpayers' money; debtor states are resistant to demands for ever more austerity. None of Europe’s leaders except Germany's chancellor, Angela Merkel—and probably not even her—can resolve the crisis alone. Yet every leader can place obstacles in the way of solutions. So progress, when it takes place, is measured in haphazard half-steps, which never quite satisfies investors who want certainty. Mr Draghi is in an entirely different position. Whereas politicians must raise money from taxpayers, the ECB can in theory print unlimited quantities of the stuff. As an independent central banker he is accountable to no government or parliament—only to other unelected central bankers in the ECB's governing council. The only real obstacle is the Bundesbank's chief, Jens Weidmann. But in a body where Germany has the same vote as Greece, Mr Weidmann can easily be outvoted—as he was this week. Despite his denunciation of the bond-buying plan, Mr Weidmann shows no sign of resigning in protest. Mr Draghi is supposed to rise above base politics, yet he takes part in every European summit. His public pronouncements are studied like Greek oracles. The high priest of Europeanism does not officially negotiate with leaders. But Like Jean-Claude Trichet before him, he sends messages to political leaders from the top of the Eurotower in Frankfurt, listens for a response and then pronounces. Last December Mr Draghi spoke vaguely of the need for a “fiscal compact” and, lo, leaders agreed to a new treaty enshrining balanced-budget rules. Mr Draghi then sprayed the banks with €1 trillion worth of cheap money. Now Mr Draghi is setting conditions more explicitly. Forget “light” forms of conditionality. The ECB said it would resume its dormant bond-buying programme only if two conditions were met. First, countries needing help must ask for it and submit to a fully-fledged programme agreed and monitored by European institutions (and preferably by the IMF too). Second, the rescue funds should start buying bonds in the primary market. This could be done by the temporary European Financial Stability Facility, or the new improved European Stability Mechanism that should soon enter into force, pending a ruling by Germany's constitutional court on September 12^th. In the past, the ECB’s conditions would be spelled out in secret letters, for instance when the ECB started buying Italian bonds last year (see my earlier blog post here). Now the ECB wants the conditions to be made explicit by governments. Bond-buying would end when the (unspecified) objective had been achieved, says Mr Draghi, or if the country in question breached the terms of its reform programme. Mr Draghi, then, is not going to stand in the front line wielding the ECB's big bazooka. But if others man the trenches, he will provide artillery support from the rear to avert a catastrophe. Mr Draghi himself uses a different image: the response to the crisis has to stand on “two legs”. ECB action without reforms would be ineffective. But he also acknowledges that reforms by governments are taking too long to bear fruit and need to be supported by the ECB. Mr Draghi justifies his action with the argument that high yields faced by southern European governments are not only the product of a higher credit risk, but also the result of markets' “unfounded” fear that the euro would break up. The former is a matter for governments, but the risk of currency redenomination is the ECB's business because it impedes “the transmission of monetary policy”. It is an appealing argument, but hard to put a number on the extra interest countries are paying because of the convertibility risk. Nevertheless, Mr Draghi insists the euro is irreversible. The ECB's intervention in the market is aimed at removing the “tail risk” of a break-up. At his press conference a journalist cheekily asked why it was Mr Draghi's job to ensure the euro’s irreversibility. By what authority could he decide what currency countries should use? Mr Draghi offered no real answer. Even if one accepts the premise that saving the euro is part of the ECB's mandate, Mr Draghi is straying into awkward territory. The ECB's independent action has been made dependent on fickle politicians. At least indirectly, Mr Draghi will be bargaining with governments over the terms of their reform programme. To the irritation of the ECB and Brussels institutions, the Spanish prime minister, Mariano Rajoy, has prevaricated for weeks over whether to seek more assistance, declaring he would wait to see the ECB's terms before deciding whether to ask for help. What if Mr Rajoy takes the money but is later deemed to have missed its targets for reform? If Mr Draghi really cuts off a country like Spain, he would surely be calling into question the future of the euro after all. There are other worries. Next week the European Commission will propose placing all of the euro zone's 6,000-odd banks under an ECB-directed central supervisor. Many worry that, despite the attempt to place a Chinese wall between the supervisory and monetary roles, the ECB's hallowed independence will become compromised by taking on the huge new task. Can the ECB really separate its decisions on inflation-fighting from its growing role in ensuring financial stability? Perhaps more importantly, would the ECB’s reputation for competence survive a major failure of supervision? Then there is the question of how to fix the design flaws of the euro zone. An article written by Mr Draghi last month for the German daily, Die Zeit, caused much excitement because the mention of “exceptional measures” seemed to confirm that the bond-buying programme would be restarted. In fact, most of the piece set out Mr Draghi’s vision for the economic and political integration of the euro zone. It is not just the currency that should be irreversible, he said, but also the whole “historic process of European unification”. In his view, stabilising the euro would require political integration that stops short of a full federation. ...this new architecture does not require a political union first. It is clear that monetary union does entail a higher degree of joint decision-making. But economic integration and political integration can develop in parallel. Where necessary, sovereignty in selected economic policy fields can and should be pooled and democratic legitimation deepened. How far should this go? We do not need a centralisation of all economic policies. Instead, we can answer this question pragmatically: by calmly asking ourselves which are the minimum requirements to complete economic and monetary union. And in doing so, we will find that all the necessary measures are firmly within our reach. For fiscal policies, we need true oversight over national budgets. The consequences of misguided fiscal policies in a monetary union are too severe to remain self-policed. For broader economic policies, we need to guarantee competitiveness. Countries must be able to generate sustainable growth and high employment without excessive imbalances. The euro area is not a nation-state where persistent cross-regional subsidies have sufficient popular support. Therefore, we cannot afford a situation where some regions run permanently large deficits vis-à-vis others. For financial policies, there need to be powers at the centre to limit excessive risk-taking by banks and regulatory capture by supervisors. This is the best way to protect euro area taxpayers. There also needs to be a framework for bank resolution that safeguards public finances, as we see in other federations. In the U.S., for example, on average about 90, mostly smaller, banks per year have been resolved since 2008 and this had no impact on the solvency of the sovereign. Political union can, and shall, develop hand-in-hand with fiscal, economic and financial union. The sharing of powers and of accountability can move in parallel. We should not forget that 60 years of European integration have already created a significant degree of political union. Decisions are made by an EU Council filled by national ministers and by a directly elected European Parliament. The challenge is to further increase the legitimacy of these bodies commensurate with increasing their responsibilities and to seek ways to better anchor European processes at the national level... It is hard to imagine any other central banker setting out such a detailed political blueprint for economic and constitutional reform. Then again, the ECB is no ordinary central bank and these are no ordinary times. In a crisis it may make sense for a trusted figure to offer direction, even to take risks. But it is not a role that an unelected central banker can play for too long. Previous The ECB and the euro crisis: Draghi drags it out Next The French budget: One cheer * Recommend 482 * * Tweet * Submit to reddit * * View all comments (253)Add your comment Related items TOPIC: Politics » * Inflation: Shrink this e-dollar * Russian politics: Making Moscow more pleasant * The fiscal cliff: Barack Obama's dual agenda TOPIC: German politics » * EU summit and the euro crisis: Step by step, with a ripped map * Italian politics and Europe: The Silvio and Mario show * Lower Saxony: The Hanoverian connection TOPIC: European politics » * Poland's past: A difficult film * How to win elections: Baracking the voters * Charlemagne: All hope not lost TOPIC: Political policy » * Gun violence in America: Newtown’s horror * The Newtown killing: Evil beyond imagining * Cliff talks: Relief in sight More related topics: * Economic policy * Domestic policy * World politics Readers' comments The Economist welcomes your views. Please stay on topic and be respectful of other readers. Review our comments policy. * Add a comment (up to 5,000 characters): ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ Post Sort: * Newest first * Oldest first * Readers' most recommended * 1 * 2 * 3 * 4 * 5 * next › * last » GBesanson Sep 24th 2012 3:00 GMT Hello, Euro: Optimal Currency Area, theory and current situation is the fifth video of the Fun & Finance´s Second Season. https://vimeo.com/49948630 In this episode, along with Marco Biagetti from Rome, we talk about the Euro Zone; topics such as what is an optimum currency area and what are the ECB´s current actions. Together with this video, we made another with a bonus question about the current situation in Italy and Spain. https://vimeo.com/49952854 Regards and thank you for watching our videos * Recommend 1 * Report * Permalink * reply exasperated Sep 19th 2012 19:24 GMT It is not logical to expect the country of Greece and Germany to have the same desires about work and money. Being of german descent, I have a work ethic that is probably different from someone growing up in a rural area of Mississippi. That doesn't mean I am right and they are wrong. But don't expect me to work less and save less to equalize our lifes. * Recommend 7 * Report * Permalink * reply sikko6 Sep 14th 2012 6:41 GMT You guys talk too much about damn political union without understanding its implications on people. Any political union will lead to a strictly "merit-based society". You cannot have a segragated society. What does this mean to you? Southern Europeans will become servants to Northern Europeans! Potential roles in the union will be rather like this; - Greeks: maids and cleaners and deliverers - Italians: cooks and opera singers - Spaniards: cooks and football players and contruction laborers - Portuguese: cooks and football players - French: chefs and butlers and farmers and craftmen - Irish: potato growers and singers and dancers - Germans: CEOs, directors, managers, engineers, scientists, professors, doctors, lawyers, ... Still do you want political union? Definitely yas, only if you are a German! * Recommend 9 * Report * Permalink * reply Pumpernickel_ in reply to sikko6 Sep 14th 2012 7:03 GMT Why can't Germanz be cooks too? * Recommend 12 * Report * Permalink * reply Anti-Racist in reply to sikko6 Sep 14th 2012 11:28 GMT Good to see the "witty comments" remain alonng with a lack of factual evidance. Agries: cocaine producing, "I love the Jeu" proclaiming, Cencorship weilding, Nazi supporting, PACO injecting, RAF cannon fodder * Recommend 12 * Report * Permalink * reply Dominique II in reply to sikko6 Sep 15th 2012 10:01 GMT A rather obvious trolling post. What would happen in a meritocratic European Union is that some Greek tycoons will hire German butlers, some Italian engineers will marry British cooks, and so on. The daft categorization you refer to will simply disappear from minds as it already has disappeared from reality. * Recommend 12 * Report * Permalink * reply Multi-Moniker Psycho Mod in reply to Dominique II Oct 1st 2012 21:38 GMT Well put. I like your style there Dominique. You left the troll speechless. * Recommend 2 * Report * Permalink * reply Josh_US Lux Sep 13th 2012 21:12 GMT @ Milovan/Joe: In reference to your post at: http://www.economist.com/comment/1630164#comment-1630164 ___________________________________ 1. I taught (past tense) at university, indeed. The happiest and laziest time of my life so far. 2. If you so prefer, I shall henceforth quote academic papers when talking about the Italian economy. I hadn't noticed that your tastes were so refined, given the fact that you dish out opinions on other countries without hardly ever linking any factual source at all. LOL 3. As for the Italian government's request for an ECB intervention in its bond market in August 2011: No need to repeat myself, but if you're happy telling yourself it never happened, so be it. 4. Finally, your crying foul whenever someone dares mentioning Southern Europe and Italy aren't exactly in top shape ("Anti-Southern European/Italian prejudices!") is getting lame. Only idiots feel insulted by facts. I can read data sheets and graphs, and when the northern half of the euro zone reliably makes it into the global top 10 or slightly below in nearly all competitivness rankings, and no southern euro zone country scores better than in the mid-30s (Spain), and most a lot worse (among them Italy), it's safe to say that someone has to shift a gear up if they want to be able to compete inside the shared currency again. And "that someone is you" (Sinatra), to end this entry on an appropriately romantic note. LOL * Recommend 13 * Report * Permalink * reply Josh_US Lux in reply to Josh_US Lux Sep 13th 2012 21:19 GMT @ Pumpernickel: In reference to your post at: http://www.economist.com/comment/1629588#comment-1629588 ___________________________________ I'm sure I threw one of my "LOLs" or a smiley in there to indicate to our nervous Southern European friends my comment was tongue-in-cheek. From the few things you've let out about yourself (except the belly dancing tapes, the recipes, the dog and bird whistling, and the obsessive singing of odes to blondes and non-blondes alike LOL) I take it you've been involved in some sort of shipping some surely particularly fine items of German goods overseas or even in producing them, so you know better than me that productivity is key to success in business, and labor (costs) just one factor of production. (Sausage and beer are the other two.) There is no doubt in my mind that nobody works harder than someone who has to run a few miles to the next waterhole every morning and then spent the rest of the day collecting firewood and chasing a desert rat across the savanna to have something to put on the roast at night, such as our friend Milovan/Joe (huh?).* * Just kiddin', Joe - no need to give me a ten-page summary of the proud history of rat consumption in present-day Italy... . * Recommend 15 * Report * Permalink * reply Josh_US Lux in reply to Josh_US Lux Sep 13th 2012 21:34 GMT @ Junoir: http://www.economist.com/comment/1629157#comment-1629157 _________________________________ I admit it, I fell for it. It was all a big bluff. Nobody pulls it off like a German Chief Justice, telling world media how he's been incarcerated in his office cell for two months, weighing the future of his country, Europe, the world day in and day out while being force-fed cheese sandwiches and diet coke - only to then show up looking as if he'd just debarked a holiday cruise liner and pronouncing another one of those trademark "yes, but" rulings. I wouldn't be surprised if it turned out he read out last season's verdict. Did you know many Greek lawyers have always been trained in Germany? Now you know why. * Recommend 15 * Report * Permalink * reply Josh_US Lux in reply to Josh_US Lux Sep 13th 2012 21:36 GMT @ MC http://www.economist.com/comment/1629344#comment-1629344 _________________________________ Nobody would miss my insignificant savings - except me if they were gone;-)... . * Recommend 11 * Report * Permalink * reply FranciscoLebre Sep 13th 2012 16:37 GMT Nice, this 2017 popular German Poem: First they came for the Icelander´s banking accounts. I didn’t care. I was not an Icelander. Then they came for the Greeks public servants. I didn’t care. I was not a Greek. When they arrived to Portuguese pensioners, Since I was not Portuguese, I didn’t care. Then they took all jobs to the Spanish, Who cares? I am not Spanish jobless. Now they are taking all my benefits, But now it is too late. Since I didn’t care for no one No one cares about me * Recommend 13 * Report * Permalink * reply Josh_US Lux in reply to FranciscoLebre Sep 13th 2012 22:13 GMT A nice thank-you note for more than 700 billion euro worth of German guarantees and aid for Greece, Portugal and other non-perfomers you've penned down there, comrade. I am sure it will be appreciated once the first bills will actually come due. * Recommend 20 * Report * Permalink * reply dunnhaupt in reply to Josh_US Lux Sep 13th 2012 23:07 GMT The 700 billion of taxpayers' money that were used to rescue US banks have been paid back with interest. Guess how much the Germans will get back for their 700 billion? * Recommend 13 * Report * Permalink * reply KanePrior Sep 13th 2012 12:55 GMT I think it will take much more than Draghi to fix the problems of the euro, he can definitely help in the short term, but in the long term European leaders need to decide what direction they want to take, because right now it seems a lot of countries are heading in different directions. I wrote an article on Spain's economic woes and their effect on Spanish football, if you are interested in either subject please have a read, thanks. http://www.just-football.com/2012/09/no-tenemos-dinero-beneath-the-glam o... * Recommend 14 * Report * Permalink * reply Anti-Racist Sep 13th 2012 12:15 GMT A question for those of intellect! The foundation of the Markets in Finacial Instruments Directive 2004 (MiFID), states an investment firm can set up a branch in a 'home country' and partake in trading on the single european market, including in other European national markets free from any restrictions as once it meets all legal obligations with repect that that countries regulations. Therefore with the introduction of this we have seen a number of 'subsidary bank' ie Ulster Bank is to RBS for one example. If a 'home state' investment firm (RBS) based on market inside knowledge invests large quantites of resources in 'subsidary bank' (Ulster Bank) in hope of manipulating growth in the economy is this not the same as 'Ficticious Devices' as outlined under the Central Bank and Finacial Services Authority Act. Given this then lead to the strenghting of the Euro would this under the same act of legislation be regarded as 'price positioning'? Under the above legisaltion it is the entitlment of the Financial Regulator of sovern states to request all documentation with regards to any wrong doing precieved. (In this case 'Insider Dealing'). Under the Central Bank and Financial Serivces Act would it not be possible in certain cases to impose a maximium fine of 10 million or maximuim of 10 years sentence on those in European Financial Institutions?. Those people who may be innocent can be compensated under Investment Compensation Company Limited (ICCL) if they have lost invested pensions for example. A dream I know. Would be interested to hear from my friend Zobras, Pumper, A.J.Maher, Birdnick,LyV and Vivahorsemachete WWWWWWWWWWEEEEEEEEEEEHHHHHHHHH Conchuir * Recommend 12 * Report * Permalink * reply sikko6 in reply to Anti-Racist Sep 14th 2012 6:45 GMT Hi, Racist, EU and eurostan is a fake dream! * Recommend 13 * Report * Permalink * reply happyfish18 Sep 12th 2012 13:48 GMT The PIGS are all along rather reluctant to implement the austerity demanded by the Germans. Rather than buying PIGS bonds, the Draghi dude should do more of the QE printing to save the piggies . * Recommend 13 * Report * Permalink * reply enriquecost in reply to happyfish18 Sep 12th 2012 18:58 GMT It is being already implemented. Budget deficit in Italy is half the U.S., Britain or Japan in spite of the recession. Spain´s budget deficit this year will be 2 points lower than the American, British or Japanese (even if last year it was similar) Portugal is doing a very good job. The result is that Spain´s trade deficit is turning into a surplus. * Recommend 16 * Report * Permalink * reply sikko6 in reply to enriquecost Sep 12th 2012 21:24 GMT That's not good enough. Your country needs huge budget surplus to pay back debts. Otherwise debt payment alone will be a massive problem for your country and will remain as a proud member of PIGS until you reduce the debts significantly. * Recommend 14 * Report * Permalink * reply enriquecost in reply to sikko6 Sep 12th 2012 22:14 GMT Of course, and that for any member state because Spain´s Public Debt is still lower than Germany´s. Fortunately for Germany, Gerhard Schroeder and the coalition Government did a decade ago what Spain is doing now. * Recommend 12 * Report * Permalink * reply Anti-Racist in reply to enriquecost Sep 13th 2012 12:47 GMT Untrue I'm afraid, Just to lazy to type it out. Will explain when I get more energy. Please see my comment at top of page for dumbed down explaniation Regards, Conor. * Recommend 16 * Report * Permalink * reply dunnhaupt in reply to enriquecost Sep 13th 2012 23:36 GMT Not good enough, Enrique. A country that needs to borrow even more money just to pay the interest on what it already owes, is obviously in deep trouble. * Recommend 17 * Report * Permalink * reply V2Fdj9RFo8 in reply to enriquecost Sep 15th 2012 6:53 GMT I'm sure it is true, but the difference is that the US, Britain and Japan all have independent control of their own economies and therefore the ability to create confidence (or not) in their ability to resolve their problems themselves. If they fail to do so then the markets will dump their currencies to stop loss, which will hurt like hell (ask anyone in Britain who lived through the 70's or early 90's), but will at least devalue their debts. Not an option open to Spain or Greece or Italy but one which all of those countries made frequent use of when they had their own currencies. would. Unfortunately their politicians seemed to think that either the option was still available, or that "someone else" (a.k.a Germany in the interests of binding itself to Europe out of a sense of guilt and the fear of being seen to be too powerful) would foot the bill. However a new generation of German politicians and bankers might think that it has done quite enough already and no longer feels personally responsible for what its great-grandfather did - and the other northerners (Dutch, Finns etc) who had nothing to feel guilty about in the first place are even more pissed-off. Which means that Spain etc have to make their economies at least as efficient as any other in the eurozone, which they have signally failed to do, because that would have meant telling the voters the truth that the happy fairyland of ever-increasing public spending of the 00's was going to come home to haunt them later. Later is now. * Recommend 11 * Report * Permalink * reply Anti-Racist in reply to V2Fdj9RFo8 Sep 17th 2012 12:14 GMT Ding Ding Ding, We have a winner. "I'm sure it is true, but the difference is that the US, Britain and Japan all have independent control of their own economies and therefore the ability to create confidence (or not) in their ability to resolve their problems themselves" Afterall Japan did deflate its own currency during "The Lost Generation" of the 90's and export its way out of recession. Something that today is virtually impossible within the Eurozone as currency rates are set by the ECB and not individual member states. Thus making is exponetionally harder to export one's way out of a rut. Regards, Conchuir. * Recommend 10 * Report * Permalink * reply enriquecost Sep 11th 2012 11:59 GMT According to the subsidiarity principle, the German Government is right. E.U. supervision should be for large banks with presence in different member states of the Eurozone, while national supervision will take place with those banks which only work inside one member state. * Recommend 20 * Report * Permalink * reply georgi_benevolent Sep 11th 2012 9:12 GMT EC and ECB mind-control many politicians and business people in Europe. They manipulate financial markets, require high interest rate, require low-price privatization. This is done with small implants in the head (sometimes involuntary)and wireless technology. Essentially a sensor is connected to nerves and the brain teaches itself to recognize the single in this way the thoughts of a person can be received and also send to him/her. I found such device implanted in my sinuses with FMRI. I studied at CEU - sponsored by Soros, and Rostowski, the financial minister of Poland was teaching there (he is also mind contolled). Behind Soros, actually are EC and ECB - the owners and beneficiaries of the technology. It is not done for security, because I worked for the Bulgarian National Bank and I was threatened with this technology to make credit expansion for the bank cartel (CEU is teaching the central banks in CEE this actually). I also met Papademos at a Austrian Central Bank Conference, while he was in ECB, and I believe he is also mind-controlled. It is probably that EC and ECB will use the latest technologies to send some Greece financial minister in the hospital as they control his mind - everybody is aware for the latest technologies. It is the behavior of EC and ECB that should be clarified - they would do anything for the billions Greece own them - but crimes should also be punished. It is not a union, but a brutal mafia raising their capital. The same is valid for Mario Monti. * Recommend 16 * Report * Permalink * reply enriquecost in reply to georgi_benevolent Sep 12th 2012 17:50 GMT If all was so easy...it would be solved just retiring the implants. Unfortunately, it is more complex. * Recommend 12 * Report * Permalink * reply Einar Bjarnason Sep 11th 2012 8:51 GMT "At his press conference a journalist cheekily asked why it was Mr Draghi's job to ensure the euro’s irreversibility. By what authority could he decide what currency countries should use? Mr Draghi offered no real answer." Well, hard to see a purpose for the ECB without the Euro. And moreover, it´s mandate of stable prices rather becomes pointless, if the Euro itself doesn't survive. ---------------------- "The euro area is not a nation-state where persistent cross-regional subsidies have sufficient popular support. Therefore, we cannot afford a situation where some regions run permanently large deficits vis-à-vis others." That is clarity of thinking. Many have pointed this out, but now finally Europe has a top central banker, that dares telling the bleating obvious. Unfortunately if all of his suggestions become operational without a political union, the so call democratic deficit would become a yeawning chasm. So Europe only needs to develope a political union at the same time, but it's hard to see that the EZ populations, would stand for being ruled from above from unelected officials. That makes the matter quite tough to achieve - indeed. * Recommend 28 * Report * Permalink * reply KKumar572 Sep 11th 2012 5:00 GMT What kind of claptrap is this? Anything the European do is wrong. Central bank does nothing. That's wrong. Central bank does something (the same thing you guys have been screaming for from a year back) they are becoming too powerful. Politicians have failed. Can you guys not write straight? Is this crooked cynicism part of the psyche of this magazine? * Recommend 38 * Report * Permalink * reply PSH Sep 11th 2012 0:45 GMT And the first politician to call Draghi's bluff is none other than Mariano Rajoy. Sounds like something out of the movie "Treasure of the Sierra Madre": Conditions? We don't need no stinking conditions! The moral hazard vultures are circling far sooner than expected. Wonder if they're looking down at a struggling Mr. Draghi, or the Euro itself. * Recommend 23 * Report * Permalink * reply Karimazizi Sep 10th 2012 23:54 GMT "For financial policies, there need to be powers at the centre to limit excessive risk-taking by banks and regulatory capture by supervisors." "The euro area is not a nation-state where persistent cross-regional subsidies have sufficient popular support." Both the statements focus at centralizing the Eurozone within the hands of Germany, UK and France and subjugating other Euro nations. Eurozone was destined to fail from the start, and now it is being monopolized by the three states. Looks like the blood of colonialism era is still running deep! * Recommend 23 * Report * Permalink * reply Karimazizi Sep 10th 2012 23:54 GMT "For financial policies, there need to be powers at the centre to limit excessive risk-taking by banks and regulatory capture by supervisors." "The euro area is not a nation-state where persistent cross-regional subsidies have sufficient popular support." Both the statements focus at centralizing the Eurozone within the hands of Germany, UK and France and subjugating other Euro nations. Eurozone was destined to fail from the start, and now it is being monopolized by the three states. Looks like the blood of colonialism era is still running deep! * Recommend 27 * Report * Permalink * reply guest-iooalol Sep 10th 2012 21:44 GMT Hi, I am not an economist and don't have any formal knowledge in this field, but I write here just to provide an opinion...I'd be happy to be corrected with clear explanations...and facts. As a Spaniard, frankly, I do understand people from northern countries don't want to pay for southern mistakes or to sustain an artificial standard of living (at least no more than the level required to buy products coming from northern countries). Anyone should achieve that by himself. So, I agree transfering rents from north to south should not be done (I repeat, at least no more than the amount required to sustain demand of northern products). However, my view is that many different things are mixing in the current situation, and the truth usually have different angles. For example, the fact that the interest requested for spanish bonds dropped sharply just after Draghi's, already expected, words, makes me think that real, dirty especulation has been going on for weeks or months. That's money from spanish tax payers...who was behind that especulation? In some cases I guess that northern banks with the money of their customers (that money saved to pay for future pensionists travelling around the globe with deep pockets). So, are to some extent spanish tax payers paying for northern future pensions? Is this a kind of "rent transfer" too? I just want to point out that different contradictions can also be found in the moralistic, and sometimes too proud, speech that I've read in many entries of readers comments since months. With regards to Spain ,yeah, we have a lot of work and improvements to do in coming years. Yes, we can. First thing is to get rid of our useless politicians, and next step is to introduce a cultural shift...of course keeping our personality. * Recommend 20 * Report * Permalink * reply Readeru in reply to guest-iooalol Sep 13th 2012 15:38 GMT Hello, You do not need "dirty speculation" to hike bond yields. Merely the fact that buyers are not sure they will be able to sell the bond a year from now at today's price lowers its' price in the market, that is it rises its' yield. * Recommend 9 * Report * Permalink * reply guest-iooalol in reply to Readeru Sep 13th 2012 22:32 GMT Yes, that looks like a plausible explanation for part of the reality, but it does not imply that speculation does not exist...I bet it does. I believe others think so too, e.g. See http://www.economist.com/node/21562919 * Recommend 8 * Report * Permalink * reply pstruan Sep 10th 2012 19:34 GMT There is a real danger in an ECB that is not accountable...see a good analysis here: http://lostinbabel.wordpress.com/ * Recommend 17 * Report * Permalink * reply Ed the Ed Sep 10th 2012 15:40 GMT Draghi's move is just another morphine shot to a terminally ill euro. His own personal interest, like all Euro politicians, is to keep the golden job + perks. Thus the lies they want us to believe. The euro was a bad project, doomed from day one, the largest financial fiasco in history. Despite artificial over-evaluation for many years, the farce couldn't hold forever. * Recommend 28 * Report * Permalink * reply Stephen Poulitsis Sep 10th 2012 15:32 GMT "doing" even when "doing it wrong" is more important than "thinking right" on the sidelines. In any case, a priori, it is almost impossible to predict the future. "Hold tight", we're in for an interesting ride! * Recommend 19 * Report * Permalink * reply TdCE Sep 10th 2012 14:52 GMT The main issue is that: The International speculators have to be stopped they are a PLAGUE. Congratulations Mr. Draghi!! It is more respectful a decision by ECB than local central banks that represent one single country interests like German Central Bank or other local. Why should all euro countries accept orders from German Central Bank that proved already to have just one exclusive objective in mind: To save German economy and specially help almost every German banks that were bailout by German Government.Europe is an instrument to achieve the German goal. It is not a Goal in itself. ECB is an European Institution and Draghi was elected by European Countries. The German Central Bank just represents Germany, so their opinion is to be respected but not followed all the time. Mainly when it is political and defensive of German point of view exclusively. Someone is commenting that the PIIGS should have no help, but is forgeting that the PIIGS sustained German and other Nordic economic development and external debts for years in the name of European solidarity. Now it's their turn. * Recommend 23 * Report * Permalink * reply Wilhelm Röpke in reply to TdCE Sep 10th 2012 16:55 GMT "Someone is commenting that the PIIGS should have no help, but is forgeting that the PIIGS sustained German and other Nordic economic development and external debts for "years in the name of European solidarity. Now it's their turn." Could you explain, please? Did I get you right that Germany took out debts beforehand and today, since it was granted, it is obliged to be solidarity? I would like you to provide facts - I never learnt about it. "It is more respectful a decision by ECB than local central banks that represent one single country interests like German Central Bank or other local. Why should all euro countries accept orders from German Central Bank that proved already to have just one exclusive objective in mind: To save German economy and specially help almost every German banks that were bailout by German Government.Europe is an instrument to achieve the German goal. It is not a Goal in itself." though that the bad Germans hold a stake of 27% of the ECB. Whereas all the others which contribute much lesser have the same weight of vote. Moreover I would like you to provide facts in order to convince me that the German Central Bank bailed-out German banks. Never heard about that. Furthermore, what other interests do other Central Banks have, if it is NOT just their national interest? Normally it so that the one who calls the piper calls the tune. The country that is the most liable is: Germany. The country holding the biggest stake is: Germany. Therefore the question is: why do all others, except a few, make policy against Germany? * Recommend 26 * Report * Permalink * reply turbatothomas in reply to Wilhelm Röpke Sep 11th 2012 8:28 GMT 27.% is the largest slice of the cake, still a minority. You can't expect the ECB always to operate against the interests of the majority. We wil see now wether the definition of who would deal with the catastrophe is enough to avoid it. * Recommend 10 * Report * Permalink * reply TDmR4iDgsT in reply to turbatothomas Sep 11th 2012 11:40 GMT You are wrong on the 27%. Why is everyone so fussed about the German share? Because nominally it is 27%. But that includes Spain and Italy. (and of course all the other debtors). If you deduct the ones that are not sound (sound is France???), Germany has 50%plus or 75% plus! So: How on earth is it fair that they only have one vote of 17? * Recommend 16 * Report * Permalink * reply TDmR4iDgsT in reply to TdCE Sep 11th 2012 11:54 GMT Excuse me? "Someone is commenting that the PIIGS should have no help, but is forgeting that the PIIGS sustained German and other Nordic economic development and external debts for years in the name of European solidarity. Now it's their turn." They did that in the name of solidarity? I would say they did it because they wanted 1. a quality product 2. do something for their lives - and surely not for the Northerners. What a crazy way of thinking! (from my point of view) * Recommend 16 * Report * Permalink * reply 8QxQreU4xW in reply to Wilhelm Röpke Sep 11th 2012 17:09 GMT Balance of payments can be a source of public debt if negative. With a common currency you alter the terms of trade between European states, and this clearly damages countries that used to have a weaker currency (PIGS) and improves the export performance of countries like Germany. Moreover the less inflation the more expensive becomes the public debt. Clear enough? If this is still not enough for Weidmann, I can go on. Extremly high levels of unemployment are making impossible for Spain and Greece to collect more taxes, covering increasing interest expenditures (they're already cutting public expenditure, even if this further increases unemployment). Italy is already collecting more taxes than what is spent by the government, but this is not enough to cover interest expenditures and therefore is running a deficit. What happens to the German taxpayer if BCE prints more money to buy some bonds in the secondary market? A bit of inflation...unacceptable, isn't it? * Recommend 11 * Report * Permalink * reply ShNNJQRoHQ in reply to Wilhelm Röpke Sep 12th 2012 14:48 GMT It is clear why Germany pays 1,60 pct. for its bonds at 10 years. Because some other countrees are squeezed and must pay 5 or 6 pct., so the "poor" south is subsidizing the rich north. The "help" from the north with very strict and painful conditions; by the way the bail-out for the Spanish bank, 30 bn. EUR as 1st. part of the 100 bn. approved has not been made available yet, is only a compensation of an unfair situation. . Perhaps the name Hypo-Vereinsbank and in a lesser extent other German banks such Commerzbank sound now a bit in your scarce memory. They were bailed out in 2008 as far as I remember. The German regional banks, the Landesbanks have many problems and the Bundesbank does not want that these problems come out to light. * Recommend 11 * Report * Permalink * reply Wilhelm Röpke in reply to ShNNJQRoHQ Sep 12th 2012 17:22 GMT Hm, there is no poor south. There are many poor countries. They are not poor, however, under-financed and this makes a difference. The people are often rich but do not pay taxes or taxes needed are not levyed. Referring to your passage "Hypo Vereinsbank" I have not found any evidence that this bank was bailed-out. But some others were. Please take into account that the German Central Bank DID NOT bailed-out any German bank. This is the point I intended to stress out. When it comes to Spain's banks I am unsure about their real problems. Spain did not put all facts on the table beforehand. Nevertheless Spain asked for further money from abroad and the amounts requested have risen constantly. The banks are just the synonym for all the deep structural problems Spain faces and its overwhelming efforts hiding it. Today I would conclude, that we see just the surface of all we face with Spain. I assume more bad facts will be uncovered. Much to my regret, I do not trust your government or Spanish banks. I hope Spain gets bank on track - soon. Therefore it should consider that it will take years before actions come into effect. * Recommend 13 * Report * Permalink * reply Wilhelm Röpke in reply to 8QxQreU4xW Sep 12th 2012 17:38 GMT Please provide information about how deep the interest rates have fallen for Spain before and after the introducing of the euro? I would appreciate whether you take that into account that Germany did not make any policy against a country but it was willing passing on to Spain interest rates that Spain never ever have been able to obtain. Unemployment is something internal. I do not understand how Germany is responsible for the unemployment of Spain? Please consider that unemployment has been always high, especially under the young people in Spain. Something that has remained - even in the good years. Inflation will not cure the problems of Spain. But Germany is liable through the ECB at 27%. The balance has extended and much bad assets are now in the balance. Insofar it is NOT just about inflation, however, it is much more about liability. If it is just so pass on to Germany your (Spain's) vote in the ECB? It would be wiser to make efforts toward changing your country that it is competitive again. * Recommend 11 * Report * Permalink * reply Cindy Walsh in reply to Wilhelm Röpke Sep 12th 2012 20:10 GMT I'd just like to remind people that the start of all of the sovereign debt crisis was the act of German and US banks giving the PIIGS financial ministers financial instruments that hid their sovereign debt allowing them to borrow ever more money, knowing these economies would implode. It was all done deliberately and the intent was to fuel a German and US economy with European credit and in the end, to force the PIIGS to reform their social governments to a German-style market-driven economy. That is the whole story. So, the solution would be for Germany and the US to write off all the bad/fraudent loans dealing with the PIIGS nations and allow the economies to recover. * Recommend 6 * Report * Permalink * reply 8QxQreU4xW in reply to Wilhelm Röpke Sep 13th 2012 0:01 GMT I do not say that Germany is responsible for Spanish unemployment, just that Germany cannot pretend too much from Spain with such an unemployment rate. See I don't get what you're talking about when you say liability. ECB can cover any amount of losses on assets book value since in theory it has infinite cash availability, and cash is an asset. The ONLY problem is inflation (and indirectly higher NOMINAL interest rates on bunds since investor may be aware of inflation risk, but what happens to REAL interest rates is uneffected) * Recommend 7 * Report * Permalink * reply * 1 * 2 * 3 * 4 * 5 * next › * last » * Comment (253) * Print * E-mail * Permalink * Reprints & permissions * About Charlemagne Our Charlemagne columnist and his colleagues consider the ideas and events that shape Europe, and the quirks of life in the Euro-bubble Follow us on Twitter @EconCharlemagne RSS feed Advertisement Explore trending topics Comments and tweets on popular topics Latest blog posts - All times are GMT [_0011_democracy-in-america.png] Presidential power: When is a recess really a recess? 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