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

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

An all-out fight for the EU budget

Germany to help China in trade disputes with Brussels

Novartis and Johnson & Johnson to deprive Europeans of their right to Health

Commission’s action plan: financial world mandatory links to environmental targets

European Business Summit 2014: The role of youth entrepreneurship education in EU’s Strategy for Competitiveness

Commission’s action against imports from China questioned

This is what countries are doing to fight plastic waste

Preparing the future today: World Health Organisation and young doctors

ITU Telecom World 2016: it’s all about working together

Global health challenges require global medical students

New VAT rules in the EU: how a digital sea could have become an ocean

Macro-Financial Assistance: Europe’s way to control Ukraine?

Can the banking union help Eurozone counter its imminent threats?

Why do medical students have to emigrate to become doctors in 2017?

Industrial producer prices on free fall and stagnant output

How smart tech helps cities fight terrorism and crime

Gender equality and medicine in the 21st century: an equity unachieved

Lessons from the Global Entrepreneurship Index

MEP Cristiana Muscardini @ European Business Summit 2014: International Trade in Europe

“One Belt One Road”: Its relevance to the European Companies


Re-thinking citizenship education: bringing young people back to the ballot box

European Commission determined to conclude EU-Mercosur trade deal this year despite French concerns

Eurozone: Even good statistics mean deeper recession

Do academia and banks favour a new Middle Ages period?

JADE Spring Meeting 2016 highlights

Juncker’s Investment Plan in desperate need for trust and funds from public and private investors

Eurozone: Bank resolution proposal gains wider interest

World Retail Congress Dubai 2016: Retail’s night of nights

EU unfolds strategy on the Egypt question

COP21 Breaking News: Conference of Youth Focuses on Hard Skills to Drive Greater Climate Action

Financial Transaction Tax: More money for future bank bailouts?

Are ECB’s €500 billion enough to revive Eurozone? Will the banks pass it to the real economy?

Has Germany rebuffed ECB on the banking union?

Pollinating insects: Commission proposes actions to stop their decline

A new proposal breaks the stalemate over the Banking Union

Global Citizen-Volunteer Internships

Will CETA be implemented after eight long years or it will be vetoed by the EU citizen?

The Peoples are missing from EU’s monetary union

GDPR and the World Cup have these 4 things in common

EU lawmakers vote to reintroduce visas for Americans over “reciprocity principle”

Russia and the West use the same tactics to dismember Ukraine

German opposition win in Lower Saxony felt all over Europe

The importance of exchanges for the medical students of the world

Greece returns to markets at a high cost to taxpayers, after four years out in the cold

A Sting Exclusive: “The Chinese economy is steady and moving in the right direction”, Ambassador Yang of the Chinese Mission to EU underscores from Brussels

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

D-Day for Grexit is today and not Friday; Super Mario is likely to kill the Greek banks still today

EU plans to exploit the Mediterranean Sea and the wealth beneath it

How bad is the Eurozone economy? The ECB thinks too bad

A Brussels antithesis reveals where the EU is heading

Copyright: European Union , 2017; Source: EC - Audiovisual Service; Photo: Frank Molter

EU hits deadlock on the future of glyphosate a month before deadline

EU Commission: Once in every 20 beef meals you eat…horse probably with drugs in it

Investment, not debt, can kick-start an entrepreneurial Europe

From inconvenience to opportunity: the importance of international medical exchanges

Canada leading the way on women’s inclusion and empowerment, says OECD

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

Trump stumbles badly on his Russian openings; Europeans wary of Putin

EU to pay a dear price if the next crisis catches Eurozone stagnant and deflationary; dire statistics from Eurostat

Ahead of State of the Union the European Youth Forum highlights lack of action on youth employment

A Sting Exclusive: “Youth voice must be heard in climate change negotiations!”, Bérénice Jond Board Member of European Youth Forum demands from Brussels

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 )

w

Connecting to %s