Draghi rehabs ECB into a tool to support growth and employment; a departure from Teutonic orthodoxy

Euro Summit. Donald Tusk, President of the European Council (second from left) meets Mario Draghi, President of the European Central Bank (first from right). (European Council - Council of the European Union Audiovisual Services. Shoot location: Brussels – Belgium. Shoot date: 07/07/2015 Copyright credit 'The European Union').

Donald Tusk, President of the European Council (second from left) meets Mario Draghi, President of the European Central Bank (first from right) in the sideline of the Euro Summit. (European Council – Council of the European Union, Audiovisual Services. Shoot location: Brussels – Belgium. Shoot date: 07/07/2015 Copyright credit ‘The European Union’).

On Thursday 22 October Mario Draghi, the President of the European Central Bank delighted the world capital markets with his comment about the “factors that are currently slowing the return of inflation to levels below, but close to, 2% in the medium term” He added that “In this context, the degree of monetary policy accommodation will need to be re-examined…in December”. Everybody translated this statement into more free money in the market.

The ECB has set the inflation target at below but close to 2%. According to ECB sources, the inflation objective should be at 1.8%-1.9%. If the price rises oscillate away from this benchmark, as they currently do, the central bank has to act, and act it will because its statutes say so. To this end, Draghi appears ready to flood the markets with more newly printed and cheaper euro. This prospect pressed the parity of the euro with the dollar to much lower levels and helped all major stock markets to earn several points. The European Sting devoted a full analysis on the causes and the effects of this new monetary policy lines on 26 October.

The ECB to fight disinflation…

However, the depression of the inflation rate to levels below or near the zero line is not in reality with the main cause that prompts the ECB to act. Draghi is primarily worried about the stagnation of the Eurozone and the world economy, but ECB’s mandate doesn’t allow it to set monetary policy targets aiming at more growth or less unemployment. A number of German professors are ready to sue Draghi for transgressing his mandate if the ECB does that. That’s why he is always very careful to note that it’s the very low inflation and not a stagnating real economy and high unemployment that oblige him to hand out more zero cost money to the real economy, contrary to the German financial orthodoxy. The Teutonic ideology wants the ECB not to support growth and employment by printing and distributing euro.

…and support growth and employment

Last Saturday 31 October speaking at an interview to his native country though, at major financial newspaper ‘Il Sole 24 Ore’, he exclaimed as it follows: “Global growth forecasts have been revised downwards. This slowdown is probably not temporary. To illustrate the importance of emerging markets, it is recalled that they are worth 60% of gross world product and that, since 2000, they have accounted for three-quarters of world growth. Half of euro area exports go to these markets. The risks are therefore certainly on the downside for both inflation and growth, also because of the potential slowdown in the United States… There are still at least 20 million unemployed people in the euro area – many of whom are young – who need to be brought back into the labor market”.

In short, Draghi also worries about unemployment and economic stagnation as well as for the very low inflation rates. The German idea is that policies to improve the conditions in the labor market and the real economy pertain to the domain of politicians and do not fall within the mandate of the central bank. It must be noted that the German minister of Finance Wolfgang Schäuble has commented that there is nothing wrong with the very low inflation rates.

Everybody else does it

On the contrary, all the other major central banks of the world including the Bank of England, the American Fed and the Bank of Japan are clearing setting as their targets to fight unemployment and support the real growth with purely monetary measures that is by printing and distributing zero cost money. Germany strongly disagreed with this approach.

Nevertheless, the undercapitalization and the other problems that currently plague the German banks and more so the Deutsche Bank have obliged the German decision makers to reconsider their orthodox views about monetary policy. It’s like Volkswagen! The Germans played the card of mechanical excellence and financial orthodoxy for as long as it helped them and hurt anybody else. This practice also included obscure ways and means to make their cars and banks look perfect while they are rather problematic.

Germany reconsiders

When the moment of truth came though, Berlin begs for clemency and say they won’t do it again. In both cases, Volkswagen and Deutsche Bank alike, the Germans were quite deceitfully making their cars and bank look more than they really were. Now in both cases the new management in Volkswagen and Deutsche Bank are about to cut off the sick parts. The bank is about to cut 35,000 jobs mainly in its rotten ‘investment’ part and posts losses of €6 billion in the third quarter of this year. As for Volkswagen, God knows where the downfall is to stop. In the Deutsche Bank case no dividends will be paid for 2015.

That’s why the German minister of Finance and his echo, the Governor of the Bundesbank, ‎Jens Weidmann, have now swallowed their tongues, when Draghi talks about more zero cost money to be printed and distributed in Eurozone. This is so, simply because the largest recipient of this new monetary bonanza will most probably be the Deutsche Bank.

Moralizing is a boomerang

Moralizing is a double-edged blade and usually those who preach it are crooks, and invariably they pay a dear price for their insulting imprudency. Unfortunately, they share their large costs with the innocent ones. Injecting trillions into a greedy banking system just postpones the next crisis and makes it even more destructive, but the Germans think about that only if other people’s banks are in trouble.

the sting Milestones

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

Brexit Preparedness: European Commission adopts final set of “no-deal” contingency measures for Erasmus+ students, social security coordination rules and the EU budget

The journey begins – 2021 is the European Year of Rail!

Three experts on why eradicating plastic pollution will help achieve gender equality

Informal meeting of heads of state or government, Sibiu, 09/05/2019

State aid: Commission opens in-depth investigation into public support for expansion of LG Chem’s electric vehicles battery plant in Poland

Rising number of young people excluded from jobs, education and training

Iran protests: Live ammunition reportedly used, says UN human rights office

In dreams and in love there are no impossibilities

Opening Remarks by H.E. Ambassador Yang Yanyi, Head of the Chinese Mission to the EU at the Chinese Fashion Night

EU Facility for Refugees in Turkey: €5.6 billion out of €6 billion now allocated in support of refugees

Forget 2009, this is the real credit crisis of our time

Is there a cure for corruption in Greece?

COVID-19 vaccination campaigns and their challenges

EU Visa Policy: Commission welcomes agreement to strengthen EU visa rules

How to unleash the potential of regions like São Paulo

A comprehensive strategy for Eurozone’s long term growth gains momentum

US-EU trade negotiations: pointless tariffs against real economic growth

A Sting Exclusive: “Paris is the moment for climate justice”, Swedish MEP Linnéa Engström claims from Brussels

The ECB proposes a swift solution for SMEs’ financing

Major UN aid operation for 650,000 gets underway across Syria-Jordan border

Latest leaked TTIP document confirms EU sovereignty may be under threat

Societies must unite against ‘global crisis of antisemitic hatred’, Guterres urges

How powering food storage could end hunger

What are antibody tests and can they get the world back to work?

Education should be like everything else. An on-demand service

A new European banking space is born this year

Smart city experts should be looking to emerging markets. Here’s why

JADE Spring Meeting 2016 highlights

European research priorities for 2021-2027 agreed with member states

Latest tragedy in the Mediterranean claims over 100 lives – UN refugee agency

Parliament demands ban on neo-fascist and neo-Nazi groups in the EU

Memoirs from a unique trip to China: “my new old dragon” (Part II)

We need to rethink cybersecurity for a post-pandemic world. Here’s how

COVID-19 amplifies inequality. Fight back with long-term thinking

How COVID-19 vaccine efforts could help defeat other diseases

Former Chilean President Bachelet put forward by UN chief as next High Commissioner for Human Rights

Young people are key to defusing unrest and restoring public trust

A third of young people polled by UN, report being a victim of online bullying

The reskilling revolution can transform the future of work for women

European Defence Fund: EU funds new joint research and industrial projects

Coronavirus Global Response: EU Humanitarian Air Bridge supports Venezuela

Search Engine neutrality in Europe in danger: Are 160.000 Google filtering requests good enough?

Why we need different generations in the workplace

Mexico: UN chief saddened by pipeline blast in which dozens were killed

Use space technology to build a better world for all, urges UN chief

UNICEF urges ‘transformative shift’ in family-friendly work policies to reap ‘huge’ benefits

EU cracks under the weight of its policy on the Ukraine-Russia nub

We need a global convention to end workplace sexual harassment

Climate Change : An Already Health Emergency

10 reasons to be optimistic for the future, from young change-makers

COVID-19 practices are constantly changing – this app helps emergency doctors cope

After the European Parliament elections – what happens next?

Scourge of slavery still claims 40 million victims worldwide, ‘must serve as a wakeup call’

Chernobyl nuclear disaster-affected areas spring to life, 33 years on

Why the UK government must do more to boost green revolution

UN chief praises Africa for keeping ‘hearts and borders open’ in refugee crisis

OK computer: why the machine age still needs humans

In Bali, UN chief Guterres outlines importance of international financial cooperation for sustainable development

TTIP 9th Round marked by American disappointment: Will some optimism save this trade agreement?

As Dubai switches on its first 5G, what is all the fuss about?

More Stings?

Advertising

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