Draghi sees inflationary bubbles

 Sharon Bowles (ALDE, UK), chair of the European Parliament Committee on Economic and monetary affairs and Mario Draghi governor of the European Central bank. Monetary dialogue, 18/02/2013. (European Parliament photographic library).

Sharon Bowles (ALDE, UK), chair of the European Parliament Committee on Economic and monetary affairs and Mario Draghi governor of the European Central Bank. Monetary dialogue, 18/02/2013. (European Parliament photographic library).

The governor of the European Central Bank, Mario Draghi, speaking yesterday in the Economic and Monetary Affairs Committee of the European Parliament, in an unexpectedly strong statement said that the euro area is still open to “potential inflationary bubbles”. He then added that “the possible effects of Euro exchange rates on inflation must be monitored while banks need not only a strong single supervisory system but also common crisis resolution rules”. The members of the Committee observed that the banks need to increase lending to the real economy and the ECB has to look into that. Let’s follow the discussion.

What inflation?

Euro parities, however, with the major currencies like the dollar, the English pound and the yen have substantially strengthened during the past few weeks reducing imported inflation risks rather than increasing them. As a result, an interpretation of Draghi’s comments on potential inflationary risks in the euro area can be connected only to the extra liquidity the ECB has lent to banks. That is why he then added that banks need urgently “common crisis resolution rules”.

Very probably, the ECB is preparing the ground for a controlled withdrawal of the extra liquidity accorded to Eurozone banks under the two Long Term Refinancing Operations, conducted twelve months ago. On this occasion, the ECB passed on to banks more than one trillion to almost every Eurozone bank. Now seemingly, ECB is eager to see the banks being protected by this new mechanism after the extra liquidity will be withdrawn. Evidently, Draghi cares for the banks more than they themselves care for their own financial health. That is why Draghi stressed that the banks resolution mechanism is urgently needed.

The ECB is very eager to see the single supervisory mechanism being decided towards the mid of this year. This will be the first step towards an integrated “banking union”, which includes components such as a single rulebook, common deposit protection and the single bank resolution mechanism. Draghi added that common rules for resolving bank crises must be established rapidly.

Everything for the banks

Obviously, the governor of the ECB is now promoting the single bank resolution mechanism so as the Eurozone banks will feel “safe” to continue betting other people’s money on risky placement. As usually, if those bets go well, the profits will be pocketed by the bank’s shareholders and management. If the bets turn sour, the single bank resolution mechanism will undertake to pay peoples’ deposits.

A beautiful world created only for banks. No MEP found the courage to denounce the unholy alliance of ECB with the commercial banks. It is evident by now that the Eurozone authorities and the ECB do not want to prevent banks from spinning around people’s deposits. The denial to institutionalise a clear split between banks approved for accepting deposit and investment banks is like prolonging the risks of a potential catastrophe the banking system can cause to the real economy.

Investment banks should then be forced to bet their own money and not put the entire system at risk. Instead of that, Draghi is pressed to see enacted the bank resolution mechanism to wholesale safeguard banks from their own carelessness.

Many MEPs, however, urged the ECB to do more to encourage banks to lend to the real economy. The fact that the banks do not increase their lending despite having cashed in trillions from the ECB is an infallible witness that they use this money for risky bets. At this point, also Draghi defended the banks by saying that, if the ECB forces the banks to lend to SMEs and the households, then the central bank has to be responsible for those loans. Obviously, according the Draghi the banks should be relieved from any responsibility, if they lend money to the real economy and the ECB should under-rewrite those loans. At the same time, the ECB does nothing to stop the banks from undertaking risky bets with depositors’ money. As they say “heads I win, tails you lose”.

Draghi, was asked by left of centre MEPs whether the ECB would advocate “lighter touch” austerity in the countries hardest hit by the crisis. He replied that, “the solution was not to postpone austerity measures, but to devise them in such a way as to reduce their negative effects”. As if there existed a clever way in making the poor poorer. But Draghi doesn’t care much about that.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Hungary: Commission takes next step in the infringement procedure for non-provision of food in transit zones

World Cancer Day: Early cervical cancer diagnosis could save lives of over 300,000 women

Why AI will make healthcare personal

Drinking water: new plans to improve tap water quality and cut plastic litter

Beware the fragility of the global economy

Afghanistan: Civilian casualties caused by IEDs has reached ‘extreme levels’, UN warns

As rural communities age, their public transport is shrinking. It’s time to fix this

How 5G can connect the affordable homes of the future

This is our chance to completely redefine the meaning of work

How blockchain can manage the future electricity grid

This is what Belgium’s traffic-choked capital is doing about emissions

MEPs wants to increase research funding to €120 billion in 2021-2027

The world wide web is 30 years old. What better time to fight for its future?

Britain in and out of the EU

Commission celebrates the 30th anniversary of the Jean Monnet Activities promoting European studies worldwide

Four ways innovation can help to beat heart disease

DR Congo elections: ‘Excessive use of force’ in campaign must be avoided, says Bachelet

Do academia and banks favour a new Middle Ages period?

Millennials (and Gen X) – Here are the steps you should take to secure your financial future

How Britain’s backyard bird feeders are shaping evolution

Commission publishes the first report on the issuance of a Eurobond

Support ‘winds of change’ in DR Congo to consolidate positive developments, urges UN mission chief

Ramp up nuclear power to beat climate change, says UN nuclear chief

World Food Programme accesses Yemeni frontline district for first time since conflict began

Brain drain 2017: why do medical students need to emigrate to become doctors in 2017?

Hydrogen power is here to stay. How do we convince the public that it’s safe?

Historic first, as Tolstoy’s War and Peace lands in Geneva, to mark international centenary

How sustainable infrastructure can help us fight climate change

Is it impossible to place the banks under control?

WEF Davos 2016 LIVE: “Employment contracts today are a reducing share of the workforce”, scientists worry in Davos that the 4th industrial revolution threatens employment globally

From UN Assembly podium, Central African Republic leader appeals for lifting arms embargo

Google once more under EU crossfire from a possible record fine and new Right to be forgotten case

UN health agency highlights lifestyle choices that can prevent onset of dementia, as millions more succumb each year

‘Digital divide’ will worsen inequalities, without better global cooperation

Siege of Syria’s eastern Ghouta ‘barbaric and medieval’, says UN Commission of Inquiry

Moves to create a Kosovo army have ‘deteriorated relations’ with Serbia: UN peacekeeping chief

Human Rights: breaches in Cambodia, Uganda and Myanmar

EU Parliament: Deposit guarantee and trading platform transparency sought

Mergers: Commission fines Canon €28 million for partially implementing its acquisition of Toshiba Medical Systems Corporation before notification and merger control approval

Innovation for a smarter world: ITU Telecom World 2018

Europe’s forests are booming. Here’s why.

Do the giant banks ‘tell’ Britain to choose a good soft Brexit and ‘remain’ or else…?

We have to learn to trust Artificial Intelligence. Here’s how

This is what you need to know about the Iran nuclear deal

US-North Korea summit ‘an important milestone’ towards denuclearization, says Guterres

MWC 2016 LIVE: GTI shifts to phase two – 5G – after hitting milestones

Can elections in Italy and Germany derail Eurozone?

Plastic Oceans: MEPs back EU ban on polluting throwaway plastics by 2021

The Fourth Industrial Revolution is changing how we grow, buy and choose what we eat

UN peacekeepers warn of increasing global challenges

“Cyber security is a shared responsibility: stop, think, connect”, a Sting Exclusive by EU Commissioner Gabriel

Who will win the AI race? If countries work together, then the answer could be all of us

At UN, France’s Macron says more ‘political courage’ is needed to face global challenges

Bundesbank’s President Weidmann criticises France and the EU. Credibility at risk?

Guterres: Security Council’s African alliances ‘needed and appreciated more than ever’

TTIP wins Merkel’s endorsement ahead of 2016 tough deadline

How smart farming is helping Brazil feed the world

The European Commission cuts roaming charges. But “it’s not enough”…

EU to gain the most from the agreement with Iran

EU, Brazil to hold high level Summit in Brasilia

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s