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

Advertising

Advertising

Advertising

Advertising

Featured Stings

A voice from Syria: the positive prospect of clinical research despite the excruciating circumstances

The EU Commission does nothing about the food retailing oligopoly

EU readies for eventual annulment of the Turkish agreement on immigrants-refugees

Can We(esterners) ever understand (the) Chinese

The EU Parliament slams Commission on economic governance

Juncker Investment Plan for Europe welcomed by European Youth Forum

Spirit unlimited

Switzerland to introduce strict restrictions on executive pay

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

Refugee crisis update: EU still lacks solidarity as Hungary and Slovakia refuse to accept EU Court’s decision

The battle for the 2016 EU Budget to shake the Union; Commission and Parliament vs. Germany

Trailing the US-EU economic confrontation

Is it true that the G20 wants to arrest tax evasion of multinationals?

Conflicting statistics and bad banks haunt the Eurozone

The EU risks trade relations with China over the Tata hype about steel

The European Parliament x-rays the troika’s doings

How ‘small’ is Europe in Big Data?

Has the EU economy truly revived from the financial crisis?

Jo Cox’s murderer believed the ‘leave’ campaign leaders that the ‘remain’ vote is treason

A Sting Exclusive: “The challenge of Society’s digital transformation”, Spanish Minister of Spain for Industry, Energy and Tourism José Manuel Soria live from European Business Summit 2015

Vĕra Jourová, European Commissioner in charge of Justice

The New EU-US “Shield” for data privacy is full of holes

MWC 2016 LIVE: Mobile Connect availability hits 2B

Long live Eurozone’s bank supervisor down with the EU budget supremo

Poverty and social exclusion skyrocket with austerity

The EU threatens to impose extra import duties on Chinese products

Court of Auditors: EU spending infested with errors well above the materiality threshold of 2%

Inegalitarian taxation on labour haunts Europe’s social model

New round of bargaining for the 2014 EU budget late in autumn

What are the real targets of EU’s efforts to fight tax evasion?

Does the Greek deal strengthen the Eurozone? Markets react cautiously

A new European banking space is born this year

The ECB still protects the banks at the expense of the EU taxpayers

Russia and the EU ‘trade’ natural gas supplies and commercial concessions in and out of Ukraine

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

The EU Commission openly repudiates the austere economic policies

EU and African leaders to jointly tackle the migration crisis across the Mediterranean

Eurozone: A Sluggish economy offers no extra jobs

EU: 13 major banks may pay fines 10% of worldwide turnover

Eurozone: The crisis hit countries are again subsidizing the German and French banks

European Business Summit 2013: Where Business and Politics shape the future

The Chinese spirit

Trade protectionism and cartels threaten democracy

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

The European Internet is not neutral and neither is the Commissioner

“Is Europe innovative? Oh, Yes we are very innovative!”, Director General of the European Commission Mr Robert-Jan Smits on another Sting Exclusive

A Sting Exclusive: “Sustainable development goals: what role for business?” Commissioner Mimica asks live from European Business Summit 2015

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

Resolving banks with depositors’ money?

The time is up but the game is still not over for Greece: negotiations continue in anticipation of a new deal

Solitary Britain sides with US aggressing Russia and chooses hard Brexit

Auditors say EU spending delivers limited value for money but the timing of their report poses questions

On Brexit: the outcome of UK elections next May to be based on false promises?

COP21 Breaking News_03 December: UNFCCC Secretariat Launches Forest Information Hub

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

Businesses succeed internationally

EU out to conquer African Union summit

Why and how Germany had it again its own way in Cyprus

The European Youth raises their voices this week in Brussels at Yo!Fest 2015

JADE Handover Ceremony at the European Parliement

EU Parliament: Follow the fraudulent money and confiscate it

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