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

Featured Stings

Only the Americans are unhappy with the ceasefire agreement in eastern Ukraine

Theresa May’s global Britain against Philip Hammond’s Brexit fog

Why is Merkel’s Germany so liberal with the refugees? Did the last elections change that?

Tourism offers much to the EU gets a little

Junior Enterprises as a solution for Youth Entrepreneurship

EU Commission: a rise in wages and salaries may help create more jobs

Why Renewable Energy is an attractive investment

EU Council: The US airlines may freely pollute the European air

When is Berlin telling the truth about the EU banking union?

EU to present a “hefty” exit bill to the UK moments before Brexit negotiations

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

Let’s Learn

Brexit update: Tusk’s proposal is out and Cameron takes it all

Arlington, USA: kick-off of the fifth round of the EU-US boxing match

MWC 2016 LIVE: Intel focuses on 5G “beyond the Powerpoint”

European Union: More taxes out of less income

Solitary Britain sides with US aggressing Russia and chooses hard Brexit

War of words in Davos over Eurozone’s inflation/deflation

A new global financial crisis develops fast; who denies it?

SPB TV @ MWC14: The TV of the Future

CHINA UNLIMITED. PEOPLE UNLIMITED. RESTRICTIONS LIMITED

Snowden is the “EU nomination” for this year’s Oscars

The EU responds to US challenges by fining Apple with €13 billion

‘Internal security’ or how to compromise citizens’ rights and also make huge profits

Bundestag kick starts the next episode of the Greek tragedy

Who may profit from the rise of the extreme right in the West?

How will EU look after French, Dutch and German Elections and what will be the implications for Youth Entrepreneurship?

Brexit: when the hubris of one man can set the UK, the EU and the entire world on fire

The EU seals CETA but plans to re-baptise TTIP after missing the 2016 deadline

Merry Christmas from Erdogan, Putin, Mogherini and the Polish firefighter

Spanish and Polish voters are crying out for an imminent European change while US urge now Germany to change route

ECB’s billions fortify south Eurozone except Greece; everybody rushes to invest in euro area bonds zeroing their yields

A Sting Exclusive: “Paris and beyond: EU action and what COP21 should deliver”, Green MEP Keith Taylor discusses from Brussels 

The G7 fails to agree on growth but protects the big banks

The ECB tells Berlin that a Germanic Eurozone is unacceptable and doesn’t work

G20 LIVE: G20 Leaders’ Communiqué Antalya Summit, 15-16 November 2015

Europe turns out more jobs this summer

To Bing or Not to Bing? That is the question

Impacting society with digital ingenuity – World Summit Award proclaiming the top 8 worldwide

What the world will look like after the Iran and 5+1 deal; the US emerges as major power broker in Middle East

The financial sector cripples Eurozone growth prospects

Financial transactions tax gets go ahead

EU’s tougher privacy rules: WhatsApp and Facebook set to be soon aligned with telcos

Ukraine’s new political order not accepted in Crimea

EUREKA @ European Business Summit 2014: Innovation across borders – mobilising national R&D funds for transnational innovation in Europe

ECB to buy corporate bonds: Will government financing be the next step?

Will Brexit shatter the EU or is it still too early to predict?

Preparing the future today: World Health Organisation and young doctors

Gloomy new statistics signify no end to Eurozone’s economic misery

European Energy Union: Integration of markets and need for in-house energy production

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 )

Twitter picture

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

Facebook photo

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

Google+ photo

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

Connecting to %s