Is ECB helping Germany to buy cheaply the rest of Europe?

Olli Rehn, Vice-President of the EC in charge of Economic and Monetary Affairs and the Euro (on the right), gave a joint press conference on the meeting of the G20 Ministers for Finance with Mario Draghi, President of the European Central Bank. (EC Audiovisual Services).

Next Thursday 7 February the Governing Council of the European Central Bank will gather in Frankfurt in its regular monthly meeting, to discuss monetary policies and take the relevant decisions. Presumably there will be no change of ECB’s main interest rate, which is pegged at 0.75% as from 11 July 2012. Nor any other major policy changes are expected to be announced by Mario Draghi in his Press conference, which traditionally follows the Council meeting, giving ECB’s President the opportunity to explain the policy decisions just taken.

At the same time however all over Eurozone the local financial markets are at boiling point. In Italy the borrowing cost for the government and the private sector oscillates now at three month highs, reflecting the political instability in the country. Cyprus is threatened to be kicked out from the euro area by Commissioner Ollie Rehn, and Greece, Portugal, Spain and Ireland still paying the dearest price for Eurozone’s sovereign debt crisis.

Nothing for the South

Still the ECB President will appear in this Press conference serene with absolute self-control speaking of falling inflation rates, below the target level of 2%, but avoiding any comments on financial storms going on all over Eurozone. It seems that Draghi by been accustomed to the quite flow of the River Main under his office windows, tends to forget the rest of the Eurozone, where his decisions over interest rates do not play any role, because there is not liquidity to go around. All over south Europe businesses and households are almost completely cut off from any kind of financing and the money, whenever it exists, is so expensive that renders most investment projects non-viable.

The President of ECB has repeatedly mentioned that the dissemination of central bank’s monetary policy is a major problem, but so far he has done almost nothing to confront this major problem. He insists in applying a non-accommodative (for the real economy) monetary policy, despite the fact that Eurostat, the EU statistical service estimates the February inflation rate at 1.8% below the target ECB has set at 2%.

As a principle every central bank when inflation falls below the set target, relaxes its monetary policies by reducing interest rates and starts pump cheap money into the real economy. Draghi does nothing of two, as if ECB is there to serve the interests only of Germany and the surplus countries, paying no attention to the woes of the nations in recession.

The Japanese know better?

On the other side of policy spectrum, Haruhiko Kuroda, nominated by the Tokyo government to be the next head of Japan’s central bank, has promised aggressive steps to raise inflation to 2%. Actually he went even further. Kuroda, in a  confirmation hearing in parliament yesterday said, “I believe that currently the Bank of Japan is not doing enough in terms of the size of its asset purchases or the range of assets being bought.” And as if nobody had understood what he meant, he explained clearly that “the Bank of Japan had not bought enough assets and should buy longer-term government bonds”.

In short Kuroda is promising to do exactly what Draghi is avoiding, that is to pump more and more cheap money into the government and the private sectors in order to revitalise demand in the real economy, more so in the countries in recession. All those promises for a far-reaching monetary relaxation by the BoJ, are being aired despite the fact that the Japanese economy is much more indebted than Eurozone.

A Germanic game?

Coming back to Europe, not to vahe voice in Frankfurt is becoming a major political problem for the recession and unemployment stricken south Eurozone countries. ECB’s non accommodative and restrictive policies, by favouring the expensive euro help only the surplus Eurozone countries. Germany, having accumulated capital surpluses over the past years, wants the euro to be of high value in order to facilitate the Teutonic acquisition of assets outside Eurozone.

At the same time those restrictive ECB policies push the Eurozone countries in crisis into an even deeper recession, making their assets easy-pray for cash loaded Germans. Is this the purpose ECB wants to serve? Making Greek, Italian, Spanish and Portuguese assets cheaper, for the Germans to acquire?

Is this the Third War that Germany has declared to the rest of Europe, after having failed to conquer it during the past hundred years?  Is Drago facilitating all that despite being an Italian? The reasoning that the status of ECB does not permit the straight acquisition of government bonds in Athens, Rome, Madrid, Lisbon and Dublin is quite a jock or a trap. Under the present circumstances Berlin cannot insist on a policy that will turn the rest of Europe into a hunting ground for Germans! The ECB must amply finance the government and the private sector of the entire Eurozone, exactly as the BoJ does, serving the country. No central bank exists on its own account. It has to serve all the people who give value to the paper money it prints.