ECB: The bastion of effective and equitable Europeanism keeps up quantitative easing

Vítor Constâncio, Vice-President of the ECB, Mario Draghi President of ECB and Christine Graeff, Director General Communications (from left to right). Draghi explained the Governing Council’s latest monetary policy decisions and answered questions from journalists at a press conference on 8 December 2016 in Frankfurt am Main. (ECB Audiovisual Services).

Vítor Constâncio, Vice-President of the ECB, Mario Draghi President of ECB and Christine Graeff, Director General Communications (from left to right). Draghi explained the Governing Council’s latest monetary policy decisions and answered questions from journalists at a press conference on 8 December 2016 in Frankfurt am Main. (ECB Audiovisual Services).

Last Thursday, 12 December, Mario Draghi, President of the European Central Bank, was forced to compromise with the Germans during the Governing Council’s regular meeting. He accepted to reduce the monthly injections of cash into the economy (through asset purchases of mainly government bonds) from €80 billion to €60bn, along the lines of the nonstandard monetary policy measures or quantitative easing.

The program was introduced in March 2015 in order to revive the ailing Eurozone economy and support the over borrowed member states like Italy, by reducing the cost of their refinancing. In this respect, the ECB remains a true, effective and equitable European institution, working for the entire Eurozone and not only for its more powerful member states, as Germany wishes.

Germany wants it all

Right from the beginning though, Germany strongly opposed and fought Draghi’s non conventional monetary policy initiatives. Berlin acted quite egotistically and strictly, looking just after its own interests, paying no attention to the needs of the rest of Eurozone member states. Let’s see why and how this happens. Germany is by far the largest saver of the Eurozone, having accumulated at least €1.75 trillion in reserves, accrued from trade surpluses coming regularly in at a pace of around €250bn a year. Of course, the largest part of those surpluses is paid for by the rest of the EU member states. Selfishly though, Germany, being the largest hoarder of Europe, opposes any reduction of interest rates and doesn’t care if the refinancing costs for its euro area peers net borrowers suffocate their economies.

Last Thursday however, Draghi must have fought back effectively and announced that the program albeit smaller will be extended beyond March 2017, until the end of next December and added that “If, in the meantime, the outlook becomes less favorable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the program in terms of size and/or duration”.

Draghi is there

A very intense confrontation must have take place during last Thursday’s ECB Governing Council. The very first question at the Press conference, which traditionally is held afterwards, was about that. Draghi was asked by a journalist, if other proposals were discussed about the continuation of the extraordinary monetary measures beyond March 2017, when the current program ends. He said “Yes, the two options that have been presented were the ones that had been studied by the committees in the preceding months. One foresaw the option of continuing with €80 billion a month for six months, and the other one is the one that received a very, very broad consensus by the Governing Council”.

To be reminded that, the latter option foresees the continuation of the nonstandard monetary measures for nine months at the reduced rate of €60bn a month. Simple arithmetic tells us that the option which was finally adopted, foresees €60bn more in asset purchases by ECB (€80bn for six months = €480bn, compared to €60bn for nine months = €540bn). Reportedly, the lower option was backed by Germany and a few of its close followers. However, the Governing Council is made up by 25 members (the six members of the Executive Board, plus the governors of the national central banks of the 19 euro area countries) a rather large number of responsible people to be decisively influenced by Berlin. So they decided to spend €60bn more.

They decided to spend more

The option finally adopted (less for a longer period) was rather wrongly judged by markets as a rather tampered option, foretelling the phasing out of the program. In view of that, Draghi made painstaking efforts to convince the journalist present and, through them, the markets, that this change in asset purchases doesn’t amount to a gradual ending of it. He repeatedly explained that “If, in the meantime, the outlook becomes less favorable …the Governing Council intends to increase the program in terms of size and/or duration”.

In any case, money markets cut the euro/dollar parity down a bit. The euro fell by more than 1% just after Thursday’s Press conference in Frankfurt. The important lesson though, is that Berlin keeps countering Draghi’s initiatives to revive both the dying inflation rate and GDP growth in Eurozone. By the same token, Draghi longs to keep the euro parity with the dollar close to unit to facilitate exports and also help the over-borrowed euro area states to refinance their debts at a lower cost, by keeping interest rates at levels close to zero.

Berlin’s stubbornness

In all those fronts, Berlin is positioned on the other side of the fence. Germany continues to insist that fiscal austerity even in surplus member states like herself and restrictive monetary policy is the best policy mix for Europe. The German governing elites in politics and the economy seem to not understand, that this line of action leads to political and social stalemates all over the EU.

They refuse to see that if there is no change of course, soon Italy, Greece and probably also Spain and Portugal will be ungovernable to say the least. The same is true but in an equally dangerous manner for many northern EU member states. In Austria, the extreme right semi-fascist Presidential candidate received 47% and in Holland the extreme right, Eurosceptic, xenophobic and aggressive Geert Wilders Freedom Party is the largest political force.

Unfortunately, there are indications that Germany cannot and will not change course, and very probably will lead mainland Europe to a new and quite destructive standoff as it has done in the past.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

“At the Environment Assembly citizens expect clean, not hot air”, the Head of UN Environment in Europe underscores in a Sting Exclusive

Congrats to the #FutureofMalta: a new age of voting

NEC @ MWC14: “Smart cities” hold the key to enhancing citizens’ lives and cutting costs

MARKUP initiative to boost market access to Europe for East African SMEs

Progress in medical research: leading or lagging behind?

Security: better access to data for border control and migration management

European Youth cries out: Sustainable Development Goals ambitious, but lack focus on youth

Juncker Investment Plan for Europe welcomed by European Youth Forum

A Sting Exclusive: “Delivering on the Environmental Dimension of the new Sustainable Development Agenda”, Ulf Björnholm underscores from UNEP Brussels

Junker for Commission President: What were the stakes in this affair

The German banks first to profit from public subsidies of trillions

EU: The Member States to pay for national banking problems

Rehn very reserved about growth in Eurozone

Young people meet in Malta to shape the future of Europe

Microsoft’s YouthSpark: a kiss of Life to European Youth from the European Parliament

How many more financial crises in the West can the world stand?

Is Germany yielding to pressures for more relaxed economic policies?

Has the EU economy truly revived from the financial crisis?

Chart of the day: These are the cities where the World Cup threatens productivity the most

The Tears of lovely Memories

Inegalitarian taxation on labour haunts Europe’s social model

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

A Sting Exclusive: “EU’s Sustainable Finance Action Plan – Laying down the foundations for a Greener Financial System”, by European Commission’s Vice-President Dombrovskis

Palm Oil: With Malaysia cracking down on production, what’s the alternative?

This team of Saudi women designed an award-winning app to make the Hajj safer

Medical students: The need for emigration

Women-Friendly Spaces for Rohingya refugees: A place for protection and care

UN condemns attack that leaves one ‘blue helmet’ dead in Central African Republic

Nigeria floods: Guterres ‘deeply saddened’ by loss of life and rising need

Foreign Affairs Council (Trade) of 22/05/2018: EU relations with key trading partners

Three ways the Fourth Industrial Revolution is shaping geopolitics

The quality of health education around the globe

G20 LIVE: the EU trade gold rush continues as EU and Australia agree to launch Free Trade Agreement (FTA) live from Antalya Turkey

MEPs condemn attacks on civilians, including children, in Yemen

Walk, cycle, dance and play – UN health agency recommends new action plan for good health

Global immunization is having its annual check-up. What can we learn?

MEPs demand an end to migrant deaths across the Mediterranean Sea

Charles Michel advocates a strong Europe that acts where it can add real value

Europe united in not supporting a US attack on Syria

‘I thought I’d never get out alive’ – the Muslim director who interviewed neo-Nazis

COP21 Breaking News_07 December: “The world is expecting more from you than half-measures”, UN Secretary General Bank Ki-moon cries out from Paris

After the Italian ‘no’ and the Brexit, Germans must decide which Europe they want

UN chief urges Hamas and Israel to ‘step back from the brink of another devastating conflict’ in Gaza

Berlin to pay at the end for Eurozone banks’ consolidation

End of plastic water bottles at European Parliament

The 13th round of TTIP negotiations hits a wall of intense protests and growing concerns

More taxpayers’ money for the banks

Parallel downfalls of Merkel and Deutsche Bank threaten Germany and Europe

Italy’s Letta: A European Banking Union soon or Eurozone collapses

No recovery for EU economy in sight and a Brexit can aggravate things for everyone

Bias in AI is a real problem. Here’s what we should do about it

Varna (Bulgaria) awarded European Youth Capital 2017

‘True’ peace, requires standing up for human rights, says UN chief Guterres

UN rights office appeals for peaceful Zimbabwe elections amid reports of intimidation

EU’s Mogherini visits Turkey “to step up engagement” and highlight interests

Far from a healthy Health Workforce: lack of workforce planning leaves our citizens without access to proper care

Service Engineer Intern – 1991

The ECB will do whatever it takes to set the Eurozone economy again in motion

Cameron’s Conservatives and UKIP are exploiting and cultivating anti-EU immigration sentiment but Labour party isn’t?

The EU can afford to invest trillions in support of employment

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