Berlin vies for a Germanic European Central Bank

Sabine Lautenschläger (on the left) is a Member of the ECB’s Executive Board and Vice-Chair of the bank’s Supervisory Board of the Single Supervisory Mechanism. She is pictured here at the annual banking supervision press conference – 27 March 2017. (ECB work, some rights reserved).

Last week, the deep German state struck again targeting the heart of Eurozone. The hit was effectuated by Sabine Lautenschläger, a middle aged Stuttgart born ex BaFin (Federal Financial Supervisory Authority) employee and presently member of the powerful executive board of the European Central Bank. Sabine now wants the ECB to abandon its extraordinary monetary policy, which was conceived to save the euro area from the dying inflation and support the southern Eurozone countries to get along with their debt refinancing.

With her limited cognitive background in economics shaped by a law degree from Bonn University and no working perception of the financial universe because of her all public service career, she demanded that the ECB should rather sooner than later taper its expansive policy. Quite egotistically Sabine urges her colleagues in the Governing Council of ECB to increase interest rates and stop pumping €60 billion a month into the economy. She ignores the needs of more than half of the euro area member states for continuation of near zero interest rates, and wholly endorses the German screams for higher interest rates on the huge cash reserves of this country.

Just hoarding cash

Germany, with a savings ratio of nearly 30% of GDP and a foreign trade surplus of €300 billion last year, doesn’t spend on consumption neither does it invest proportionally at home or abroad. It just hoards the money it gains from its exports to the euro area countries. The state sector saves instead of spending a bit more than it receives (fiscal austerity) and the same is true for households. At the same time, the other euro area countries do not follow the same austere policies and their saving ratio is much smaller. Add to that a German labor market much more patronized by the deep state and more brutally liberalized than elsewhere in the EU, and you end up with the Teutonic success story.

The result is that, during the last eight years, this country has managed to create a sizeable labor cost advantage compared with the rest of the EU. Not to say anything about the free overflowing of its industrial sector to the central European countries. For example, Slovakia of 5 million people produced last year one million cars, making her the largest per capita car producer of the world. Needless to say that most of those cars come from German assembly lines.

Ruthless exploitation

In this way, Germany, even without having a substantial productivity advantage compared to the rest of the world, last year managed to export goods of a value of €1.2 trillion. This left the largest trade surplus of the world, bigger even compared to China. Germany, though, fails to substantially recycle these huge surpluses through investments within and without, while the other huge exporter, China, has been doing that regularly during the last few years. Not to forget, that the German and Chinese foreign account surpluses are somebody else’s deficits. In the long run, this arrangement will explode, with devastating results for all.

In such an unstable environment, Sabine chose to overtly press the ECB to change its appropriate for this low inflation era monetary policy, and start exclusively favoring Germany with higher interest rates. To this effect, she chose to speak to the German newspaper ‘Mannheimer Morgen‘ in an interview published last Saturday. When asked to comment on ECB’s monetary policy she said, “The expansionary monetary policy has both advantages and side effects. As time passes, the positive effects get weaker and the risks increase. So it’s important to prepare for the exit in good time…Still, we need to address the issue: how should the return to normal monetary policy be arranged? What will be the time frame, what will be the tools and what will be the sequence? That’s why we on the ECB’s Governing Council should now answer the questions I just asked”.

Inflation still falls

Obviously, Sabine is pressing the ECB hard to abandon its low interest rates policy and return to strictness. She doesn’t seem to mind much, if inflation is still far below ECB’s statutory target of close to 2% or if the central bank’s mandate obliges its Governing Council to do whatever it takes to reach it. Actually, Eurostat, the EU’s statistical service, last Monday released a flash estimate for the July inflation at 1.3% unchanged from June and well below the target. It’s more important, though, that services inflation, the strongest single item of the overall gauge, is seen to fall (from 1.6% in June to 1.5% in July). The same is true also for the basic sub index for unprocessed food, which fell from 1% in June to 0.6% in July.

In short, real facts oblige the ECB to continue with its extraordinary monetary measures, until the underlying indicators testify that inflation is close to 2% and will stay around the same levels in the foreseeable future. If the ECB follows Sabine’s demand and now starts a debate about the timing and the way to taper the accommodative policy, it’s more than certain that the financial markets will begin discounting it. As usually happens in those markets, the end result, that is, higher interest rates will materialize much sooner than expected.

What Sabine wants

This is what capital markets do, bring the future to the present. Sabine either ignores that, a highly improbable assumption, or wants to force her German target of more expensive money on the European markets. But this policy will serve only Germany because everybody else is in a deficitary state. However, the higher interest rates will also undermine the fragile growth rates Eurozone has just attained. The result will be that Europe will return to recession, a possibility that is to harm even Germany. Unfortunately, Berlin doesn’t seem to possess a wider vision for a long term symmetry in Europe.

For the last twenty years, the fully unified Eurozone business structures and the introduction of the common currency since 2002 have serviced Germany through the real markets (commercial domination). If the machinations of Berlin in the ECB achieve their target, Eurozone will be forced to service Germany through the financial markets too.

 

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

UN chief urges top digital tech panel to come up with ‘bold, innovative ideas’ for an ‘inclusive’ future

We can end TB right now. Here’s how

Multilateralism more vital than ever, as World War centenary looms: Security Council

Syria: Why did the US-Russia brokered ceasefire collapse? What does the duo care for?

New EU rules to boost crowdfunding platforms and protect investors

Brexit talks: Today the world to hear of a predictable failure

European Union: Retail sales show deep recession

Banks promise easing of credit conditions in support of the real economy

Companies have a new skill to master – innovation

70 years on, landmark UN human rights document as important as ever

COP21 Breaking News: China has promised to cut emissions from its coal power plants by 60% by 2020

Backed by UN, Asia-Pacific countries to advance space technology for ‘development transformation’

Data exchanges: Strengthening Europol cooperation with non-EU countries

JADE Generations Club 2015: Knowledge vs. competences – Do not wait for the change to happen, but make it happen

Crucial medical supplies airlifted to north-east Syria to meet ‘desperate need’

UN migration agency: young Rohingya girls, largest group of trafficking victims in camps

EU Emissions Trading System does not hurt firms’ profitability

Australia’s record heatwave: From fainting tennis players to dead fish

It’s time to stop talking about ethics in AI and start doing it

ECB is about to lend trillions to banks

New roadmap toward healthier and cleaner oceans adopted by UN Environment and European Commission

GSMA Mobile 360 Series –Digital Societies, in association with The European Sting

Internet milestone reached, as more than 50 per cent go online: UN telecoms agency

National parks transformed conservation. Now we need to do the same for the ocean

Costa Coffee products (Copyright: Costa Coffee; Source: Costa Coffee website, Press area)

The start of the “Caffeine rush”: Coca-Cola acquires Costa Coffee days after Nestlé-Starbucks deal

Mainland Europe adopts Germanic cartel business patterns

Nigeria: Armed conflict continues to uproot thousands, driving up humanitarian need

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

The Americans are preparing for the next financial crisis

EU Council approves visa-free travel for Ukraine and cement ties with Kiev

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

The EU Commission by serving the banks offers poor support to European mainstream political parties

The Italian crisis may act as a catalyst for less austerity

Brexit: MEPs concerned over reported UK registration plans for EU27 citizens

Despite violence, ‘tremendous hunger’ for peace in Afghanistan: top UN official

Online platforms required by law to be more transparent with EU businesses

EU Budget 2019: no deal before the end of the conciliation period

Child victims of DRC Ebola outbreak need ‘special attention and care’: UNICEF

Central Africa: Security Council concerned by ‘grave security situation’, calls for better agency cooperation

Food choices today, impact health of both ‘people and planet’ tomorrow

Why CEOs need to become activists in sustainability

These are 2018’s stats of the year

Poverty data never tells the whole story

8000 young people in the EP in Strasbourg: “a breath of fresh air for EU democracy”

The issue of health literacy and how it affects European health policies

The Ecofin Council creates officially the clan of ‘undead’ banks

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

Imported and EU fisheries products should be treated equally

Europe bewildered by radicalisation and terrorism

EU-US resume trade negotiations under the spell of NSA surveillance

New rules on drivers’ working conditions and fair competition in road transport

Is Europe misjudging its abilities to endure more austerity and unemployment?

Measuring consumer confidence isn’t useful anymore. Here’s what we should do instead

We can’t rid Asia of natural disasters. But we can prepare for them

Governments and non-state actors need to take urgent action to meet Paris Agreement goals

How building renovations can speed up the electric vehicle revolution

Generation Z will outnumber Millennials by 2019

Making technology work for 1.3 billion Indians

Fighting cybercrime – what happens to the law when the law cannot be enforced?

A Sting Exclusive: “The Digital Economy and Industry are no longer opposing terms”, Commissioner Oettinger underlines live from European Business Summit 2015

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