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31-05-2011, 21:24   #76
Sand
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@Later10
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That does not really fit in with what McCarthy actually said, though. He spoke specifically about public disagreement.
Which is clearly (to my mind) referring to a situation where the ECBs right hand is undermining the work of the left hand. If the ECB cant figure out that hysterically threatening to withdraw liquidity support from Greek banks doesnt affect how the market views the nature of the support for the Irish banking system then they really need to knock some heads together.

The alternative is that Colm McCarthy, respected economist and advisor to multiple Irish governments, cant tell the difference between the ECB and the EU.

Probabilities of that approach zero.

Quote:
Anyway, I think it is doing a huge dis-service to Colm McCarthy to describe him as a celebrity economist.
I think it does a huge dis-service to many economists who have dared to cross the DoF to describe them as celebrity economists. But that appears to be their defining characteristic: Getting up on TV, the radio or the newspaper highlighting dangerous flaws in government policy. Poor old Colm McCarthy is already getting schooled by internet posters on the EU/ECB.

And then of course there are those economists who are breezily dismissed as being the dogs who didnt bark...

Economists just cant win. If they get public attention, theyre attacked as publicity whores. If they dont get public attention, theyre attacked as not doing enough to warn us in advance.

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I would not put them in the same league at all.
Yet.


@Beef
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Yet Ireland is complying with the terms of her bailout and Greece is not. S&P get this but I should not???
The ECB is signalling that liquidity support to a peripheral banking system is theres to grant or withdraw on a whim. That weakens market confidence in the peripheral banks chances of survival.

And Ireland sovereign credit rating is utterly anchored to perhaps the worst bunch of peripheral banks in Europe. And whilst you can see clear blue sky between Greece and Ireland, your opinion is irrelevant. The markets do see the link, as Irish bond rates climbed in response to the ECBs hysteria:

Look at the Irish 10 year rate

In mid May its fairly stable, with even a minor decline in rates.

May 18th: ECB opens its big trap, blabbing on about dropping Greek debt as collateral and with it ending banking liquidity support. Must be the first time a Central Bank tries to undermine confidence in its own banking system.

May 19th-May 20th: Irish bond rates begin to rise, taking off like a rocket on May 20th as the full implications of the ECBs threats are digested. Finish up just over 11% by May 27th.


The goal of the ECB programme in Ireland is to get us back into the markets and their stupid, hysterical threats are actually sabotaging that effort. The ECB needs to figure out what the hell they want and then they need to get on with it, making sure that *all* their public comments are made with this goal in mind. If they want to see Ireland back in the markets, then they need to stop making stupid comments that undermine Irelands chances of getting back into the market.

LBS is also running around screaming and waving his arms in the air like Chicken Little, doing his best to convince anyone and everyone that its completely and totally *impossible* to organise a default in any way, shape or form. Which is only going to make it all the harder to actually get the job done. As must happen.

@Scofflaw
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The quality of the collateral in the ECB has already been the subject of adverse comment - allowing face valuation of collateral from a country that had already defaulted seems more than a little ridiculous.
The whole thing has been ridiculous so far, so why stop now?

The quality of Greek debt would actually be stronger after a default (once it was clear the Greeks could cope with their remaining debt, post-default) than it currently is when *everyone*, including the ECB, expects Greek default. If your debt is still honoured after a default, you can be more certain of it than you were before the default.

As for the ECBs collateral rules - they set their own collateral rules. Theres nothing to say they couldnt change them, if they wanted to. But it seems theyre currently trying to play politics to avoid having to take a hit on their balance sheet in an era where its far from the certain that the Germans will recapitalise them.

Last edited by Sand; 31-05-2011 at 21:45.
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01-06-2011, 00:36   #77
beeftotheheels
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Originally Posted by Sand View Post
Which is clearly (to my mind) referring to a situation where the ECBs right hand is undermining the work of the left hand. If the ECB cant figure out that hysterically threatening to withdraw liquidity support from Greek banks doesnt affect how the market views the nature of the support for the Irish banking system then they really need to knock some heads together.

The alternative is that Colm McCarthy, respected economist and advisor to multiple Irish governments, cant tell the difference between the ECB and the EU.

Probabilities of that approach zero.
The ECB has been entirely consistent on being averse to bondholder funding since before our bailout (and arguably had they been listened to at that time we may have avoided the bailout)

http://www.bloomberg.com/news/2010-1...ro-credit.html

So forgive me for doubting you when you say

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Originally Posted by Sand View Post
The alternative is that Colm McCarthy, respected economist and advisor to multiple Irish governments, cant tell the difference between the ECB and the EU.

Probabilities of that approach zero.
There is absolutely no evidence of the ECB being conflicted on this. There is no conflict in the ECB threatening to pull funding to prevent a systemic threat to the eurozone banking system. This is them doing their job.

There have been many conflicting reports from other EU institutions, which is understandable given the inherent conflict of interest between national and EU allegiances in e.g. the Council, but there have been none from the ECB which does not have such an inherent conflict.

Occam's razor.

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Originally Posted by Sand View Post
The goal of the ECB programme in Ireland is to get us back into the markets and their stupid, hysterical threats are actually sabotaging that effort. The ECB needs to figure out what the hell they want and then they need to get on with it, making sure that *all* their public comments are made with this goal in mind. If they want to see Ireland back in the markets, then they need to stop making stupid comments that undermine Irelands chances of getting back into the market.

LBS is also running around screaming and waving his arms in the air like Chicken Little, doing his best to convince anyone and everyone that its completely and totally *impossible* to organise a default in any way, shape or form. Which is only going to make it all the harder to actually get the job done. As must happen.
The ECB do not have "a programme in Ireland", the ECB have a job to do which involves policing price stability within the EU. The ECB do not care whether we get back into the markets, the EU/ EFSF/ EFSM/ IMF care about that, not the ECB. The ECB care about Europe's banking system working, the ECB have threatened to bring down a rain of fire and brimstone on this precisely because (per my previous link) had they been listened to earlier we may not be in this mess.

The ECB are doing their job, and doing it consistently, whether you agree with their job description or not.
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01-06-2011, 10:17   #78
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Understanding the issues

Just a note to thank all contributors to this thread. I have been trying to get to grips with the issues, and your contributions have really helped. I still don't understand the issues, but I begin to see how incredibly complicated it all is.

It is also distressing that there does not appear to be any overall solution.
Most of the actions being taken, or being advocated, appear to be focused on dealing with symptoms of the malaise - e.g. the particular problems of Greece, or Spain, or Ireland - but I can't get a sense of what is being proposed as a route back to some stable financial system.

In simple terms, it seems to me that those who lend money have a duty of care to determine the borrower's ability to pay. This basic principle seems to have been abandoned during the "boom", but is being applied with draconian enthusiasm now. Ireland has as little chance of repaying the €250 billion which, according to Morgan Kelly (http://www.irishtimes.com/newspaper/...23.html?via=mr) we will owe by 2014, as the property developers who borrowed to buy vastly overpriced tracts of land. So actions currently being taken/proposed by ECB/IMF/Ireland Government, seem to be focused on deferral rather than resolution.

In the "good" old days of the punt, it is highly unlikely we could have been able to get ourselves into this level of debt. But if we had, it would have been punt debt. Devaluation of a sovereign currency at least spreads the pain evenly over all citizens. The anger of most Irish (and Greek) people is largely focused on the unfairness in which austerity is applied within our society.

It seems to me that the fundamental flaw which led us to where we are, is monetary union without political union.

It's hard to see political union being a reality in the foreseeable future, so maybe the "overall" solution is some orderly return to individual currencies, with the way being paved with debt reduction?
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01-06-2011, 10:52   #79
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It's hard to see political union being a reality in the foreseeable future, so maybe the "overall" solution is some orderly return to individual currencies, with the way being paved with debt reduction?
I think that sums it up just fine. In the long run we have political union - a federal Europe where individual state's budgets are centrally overseen in return for the creation of a eurozone bond - or a break up. Or a third option is a decade, maybe two, of socially unacceptable austerity which would lead to a break down of law and order in peripheral countries. And that third option won't be allowed to happen. Believing there is some kind of 'muddle through' middle road is surely living in denial
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01-06-2011, 14:57   #80
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Originally Posted by Sand View Post
Which is clearly (to my mind) referring to a situation where the ECBs right hand is undermining the work of the left hand. If the ECB cant figure out that hysterically threatening to withdraw liquidity support from Greek banks doesnt affect how the market views the nature of the support for the Irish banking system then they really need to knock some heads together.
That is a conflict between the ECB's role and any possible penalties it might apply. It is quite clear to most people that the ECB's directors have not been engaging in public disagreements nor dismissing one another's statements.
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The alternative is that Colm McCarthy, respected economist and advisor to multiple Irish governments, cant tell the difference between the ECB and the EU.
Not at all. The alternative is that Colm McCarthy is misreading some public statement, but nobody seems to know what, nor does he mention it. I don't think it's a major deal, but it is misleading for him to suggest that the ECB are having a public disagreement.

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I think it does a huge dis-service to many economists who have dared to cross the DoF to describe them as celebrity economists.
Come now, plenty of economists both at home and abroad have criticised the DoF, the regulator, the CB and the Irish Government - present or past forms included. That is not the defintion of a celebrity economist in my book.

In my book, the celebrity economists are those who, possibly to enhance their own celebrity or to provoke a response, greatly exaggerate or mislead the public while the public reply with the response to the damning psalm ''It's ok, he's an economist''. Such economic psalms are - as psalms are wont to be - usually backed up with more doom, hyperbole and emotion than with statistics (or at least, accurate statistics).

Nobody is including all ''famous economists'' in that. While David McWilliams and Morgan Kelly come immediately to mind, the likes of Patrick Honohan, Antoin Murphy and Colm McCarthy certainly would not.

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Poor old Colm McCarthy is already getting schooled by internet posters on the EU/ECB.
Nobody is immune from making mistakes, I think it is a fair enough point to make that Colm McCarthy is mistaken if there is no factual basis for what he has apparently claimed to be fact. You shouldn't invest so much faith in experts unless their points can be substantiated in evidence. You seem to believe that anybody who has a PhD in economics and writes for a newspaper must be beyond criticism or correction.
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01-06-2011, 19:39   #81
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That is a conflict between the ECB's role and any possible penalties it might apply. It is quite clear to most people that the ECB's directors have not been engaging in public disagreements nor dismissing one another's statements. Not at all. The alternative is that Colm McCarthy is misreading some public statement, but nobody seems to know what, nor does he mention it. I don't think it's a major deal, but it is misleading for him to suggest that the ECB are having a public disagreement.
If you whisper something in private to a journalist it's public, and it's probably intentional. The ECB has poor form when it comes to forming and implementing policy. Trichet has already been seen to be in two minds when it comes to raising or leaving rates as they are(for better or worse). I think MacCarthy is completely right about this and it's you who is wrong!

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In my book, the celebrity economists are those who, possibly to enhance their own celebrity or to provoke a response, greatly exaggerate or mislead the public while the public reply with the response to the damning psalm ''It's ok, he's an economist''. Such economic psalms are - as psalms are wont to be - usually backed up with more doom, hyperbole and emotion than with statistics (or at least, accurate statistics).
Reality is a particularly harsh mistress for politicians. Are you one of the "we've turned the corner" brigade. With BOI shares at a new low should we buy some shares? Should these economists go off and "commit suicide"?

It's okay he's not a politician or one of the lackeys who've advanced themselves by pushing the govt. line, or giving the govt. a line that they can push!

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Nobody is including all ''famous economists'' in that. While David McWilliams and Morgan Kelly come immediately to mind, the likes of Patrick Honohan, Antoin Murphy and Colm McCarthy certainly would not.
Kelly's primary source of income AFAIK is from his job as an academic. I think it's sound policy for any media organisation to solicitthe views of someone whose predictions -figures aside I can't confirm them- on
  • the Irish banks being in crisis 2007
  • the bailout before it happened
where correct. You can't simply tar anyone with a public profile as being from the batman school of economics.

They have every right to advance themselves financially. It doesn't necessarily mean that they are intentionally misleading anyone or that they are corrupt!

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Nobody is immune from making mistakes, I think it is a fair enough point to make that Colm McCarthy is mistaken if there is no factual basis for what he has apparently claimed to be fact. You shouldn't invest so much faith in experts unless their points can be substantiated in evidence. You seem to believe that anybody who has a PhD in economics and writes for a newspaper must be beyond criticism or correction.
See above or my other posts. You can't kinda guarantee something(as we've discovered). The fact is they are now trying to withrawing the support that they've given to eurozone banks. Still referring to it as a crisis (derived from a greek word for short period of stress) when clearly it's become a saga. How many years is it since they opened the emergency window and how far out the window have they come? They never had any intention of giving this kind of support and yet here they are!

I think you're last point is hilarious. Relax we're not all morons!
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01-06-2011, 21:52   #82
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@Beef
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The ECB has been entirely consistent on being averse to bondholder funding since before our bailout
And Colm McCarthys article didnt say they were conflicted on that point - he referred to their megaphone diplomacy with Greece sabotaging the Irish plan that Trichet insists Ireland must stick too. You're off trying to disprove something that he didnt claim. Carry on the good fight.

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Occam's razor.
From the article Colm McCarthy quite clearly distinguishes between the EU and ECB:

Quote:
The EU Commission seems to be less wedded to the ECB line than had been the case in the earlier phases of the crisis, while the ECB itself is quite simply the world's strangest central bank, constrained by the inadequacies in the design of the single-currency zone over which it presides. There are other actors, in particular the outgoing governments (both look likely to lose office as soon as their electorates are consulted) of France and Germany, the traditional leaders of European integration of which the common currency is the showcase project.
Where then does that leave Occams razor? Is it more likely Colm McCarthy cant differentiate between the ECB and EU institutions....or that someone is wrong on the internet?

Honestly - give it up.

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The ECB do not have "a programme in Ireland"
Oh right. Their deliberate leaking to press to push Ireland out of the market, their involvement in the negotiation of the "bailout" and constant demands Ireland sticks to its terms whilst offloading liquidity support onto the Irish central bank and Trichet's bragging about the unprecedented ECB support for Ireland must have all been my imagination.

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The ECB do not care whether we get back into the markets
Fully agreed. They clearly cant think too far ahead.

But thats just another argument why we should ignore Trichets increasingly shrill tone when it comes to figuring out how were going to get out of this mess. Because Irish people very definitly ought to care about getting back into the market.

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The ECB care about Europe's banking system working, the ECB have threatened to bring down a rain of fire and brimstone on this precisely because....
The ECB are doing their job, and doing it consistently, whether you agree with their job description or not.
Yes, by threatening to put a bullet through the head of the banking system, and with it the sovereigns the ECB are clearly doing their job.

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On top of that drastic measures such as a default or restructuring would produce contagion effects in other countries and affect taxpayers in the other countries. Why should they pay for the mistakes of others?" he was quoted as saying.

"Restructuring can be orderly, or even beneficial for investment banks and lawyers, but not for the Greek people. It would entail a major economic, social and even humanitarian disaster, within Europe. Orderly implies things go smoothly, but if you wipe out the banking system, how can it be smooth

LBS
I mean - cant you see the incoherence of their position: they rule out default for fear of contagion and instability, and their solution is to ensure contagion and instability by finishing off the banks? Ireland requires financial stability, which the ECB claims to be providing on the one hand whilst busily undermining it on the other.

Its not the job of the ECB to represent the taxpayers or plan social/humanitarian policy in Europe. Its the job of the taxpayers, through their elected representitives, to determine their own policy solutions. Its the job of the ECB to maintain price stability and to support financial stability - not to threaten to destroy it.

@Later10
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That is a conflict between the ECB's role and any possible penalties it might apply. It is quite clear to most people that the ECB's directors have not been engaging in public disagreements nor dismissing one another's statements.
See above.

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Nobody is immune from making mistakes, I think it is a fair enough point to make that Colm McCarthy is mistaken if there is no factual basis for what he has apparently claimed to be fact.
As above - the only people who think McCarthy was mistaken are themselves mistaken as to what they believed he was claiming.

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Come now, plenty of economists both at home and abroad have criticised the DoF, the regulator, the CB and the Irish Government - present or past forms included. That is not the defintion of a celebrity economist in my book
Did I miss the additional requirements of:

A - Doing so in a public place?
B - Being annoyingly correct?

Last edited by Sand; 01-06-2011 at 21:57.
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01-06-2011, 22:56   #83
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But while a huge part of the problem remains institutional corruption then it is perfectly fair for their lenders to suggest that they take over dealing with the area that is suffering from that corruption i.e. take responsibility for the oversight of tax collection.
A much easier route is just to cut off lending and offer advice on how to sort out their problems. Once the problems are resolved, lending can be renewed. In fact that's pretty much what the IMF does.
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01-06-2011, 23:48   #84
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A much easier route is just to cut off lending and offer advice on how to sort out their problems. Once the problems are resolved, lending can be renewed. In fact that's pretty much what the IMF does.
Which I would agree with were it not for the fact that Greece are in the euro and as we are seeing the Greek problems are causing issues for the entire Eurozone so a Eurozone solution is required (unless as I suggested at the top of the thread we can remove Greece from the Eurozone/ EU in a manner which stops their problems impacting on the rest of us).
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02-06-2011, 01:00   #85
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Its the job of the ECB to maintain price stability and to support financial stability - not to threaten to destroy it.
That is presumably what they believe they are doing. They appear to be saying, in the article, you quote that should Greek debt be restructured its "quality" will be degraded to such an extent that they would no longer be able to accept it as collateral for liquidity operations.

It is not reasonable to expect the ECB to accept bonds irrespective of their quality. Indeed were they to do so the ECB would certainly undermine financial stability since no one would take the credibility of a Central Bank stuffed to the gills with junk seriously (and the ECB probably already run that risk as it is).

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Its not the job of the ECB to represent the taxpayers or plan social/humanitarian policy in Europe. Its the job of the taxpayers, through their elected representitives, to determine their own policy solutions.
The ECB is putting the ball back in the court of the politicians to come up with policy solutions. It isn't the job of the ECB to keel over at the request of politicians and agree to everything they propose. That indeed is why it is an independent Central bank.

The alternative is non-independent Central banks. These in the past have just opened the floodgates in the run up to elections - at the request of the politicians - to make the economy seem rosy which creates problems as a result (albeit ones that only become apparent after the elections).
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02-06-2011, 01:39   #86
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Realistically I think the Irish government are hoping Greece forces the Germans into a solidarity bond situation so we don't get get blamed when that is the only solution left on the table that is acceptable politically across the union.

Anything else I believe results in a fracture of the EU and potentially the destruction of the Euro.
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02-06-2011, 03:28   #87
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@Beef


And Colm McCarthys article didnt say they were conflicted on that point - he referred to their megaphone diplomacy with Greece sabotaging the Irish plan that Trichet insists Ireland must stick too. You're off trying to disprove something that he didnt claim. Carry on the good fight.
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The ECB policy is to pretend that everything is fine, stick to the programme and Ireland will be an attractive borrower in the bond market inside 18 months.

Some ECB executives were pushing this line on Ireland last week as certain of their colleagues publicly threatened Greece with a peremptory discontinuation of liquidity support to Greek banks! The flawed design of the euro system cannot fairly be blamed on ECB officials, but their dysfunctional communications strategy has gone on far too long. There is no other central bank in the world that would tolerate uncoordinated public musings about market-sensitive issues from its non-executive directors and full-time executives. The ECB appears to have somewhere between 20 and 30 spokespersons on policy questions, free apparently to disagree in public.
Okay, explain to me what the ECB's job is and why they have a conflict?

Colm seems to have inferred that their job somehow involves Ireland getting back into the bond markets and that is not borne out by the treaties.

If your analysis holds true that would also require him to have inferred that the problems with the eurozone at the moment are being caused by the ECB rather than by Greece.

Greece has failed to comply with the terms of her bailout. Whether you agree or disagree with the position the ECB is taking in terms of finding a solution the problem was caused by Greece, not the ECB.

Our problems were caused by failures in our regulatory and political systems, not by the ECB.

The ECB has consistently spoken out against bondholder burning because their job is to protect price stability within the Eurozone, and they fear the risk of contagion. Like Morgan Kelly they have already been proven right in their analysis of the risks here, which is not to say that they could be mistaken here, but they are not obviously conflicted.

That they threaten to pull funding from Greek banks if Greece "defaults" is in no way inconsistent with their line to date. If Greece defaults that threatens to bring down the entire eurozone, so the ECB are making the point that they too are empowered to, and obliged to by law, collapse the eurozone banking system before they tolerate a default which would not have the same consequences, but which they view as having potentially worse consequences.

Either define their job description, under the treaties, in a manner which suggests that they are not doing their job or are suffering from a conflict of interest, or accept Occam's Razor.

Last edited by beeftotheheels; 02-06-2011 at 11:38.
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02-06-2011, 12:14   #88
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According to this article http://www.bloomberg.com/news/2011-0...side-cuba.html released today,Greece now has a debt rating the same as Cuba.And;

'The Greek five-year swaps imply a 72 percent probability the country will default within that time, according to a standard pricing model used by traders'.

..hope I've entered that link correctly.
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02-06-2011, 14:10   #89
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@Sand you would be interested in this long but very relevant article from William Black

I am not going to repaste the article here since its long but detailed! just the conclusion below, but the overall point is simple, the ECB is putting the whole EU project at risk with its crazed policies.
This guy is a professor of Law and Economics looking at the whole picture from the outside not some boardsie who believes that the ECB can do no wrong.

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If the ECB is not curbed it will destroy the European project. The ultimate irony is that it will be the Germans and French who dominate the ECB and represent the two nations that have been the strongest proponents of an ever closer union, who will fracture the union unless they give up their theoclassical dogmas.
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02-06-2011, 14:42   #90
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@Sand you would be interested in this long but very relevant article from William Black

I am not going to repaste the article here since its long but detailed! just the conclusion below, but the overall point is simple, the ECB is putting the whole EU project at risk with its crazed policies.
This guy is a professor of Law and Economics looking at the whole picture from the outside not some boardsie who believes that the ECB can do no wrong.
Since you are endorsing this article, surely you will be able to answer a few questions that arise.

The objective of the ECB is to maintain price stability, as per Article 105 of the Maastricht Treaty

Quote:
1. The primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stabilty, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 3a.
How, given its defined role in stabile Eurozone monetary (and not fiscal or sovereign) policy, could the ECB possibly make transfer payments to Greece without causing financial instability elsewhere in the Eurozone and thereby leading to price instability. The institution responsible for price stability would now be printing money and throwing it out of helicopters down on the Greeks if William Black had his way it seems, since he expressly denies a requirement that monetary aid be of a loan. Investors would start to anticipate similar moves in the peripherals, and a self fulfilling prophecy with the inevitability of inflation 9already increasing) would ensue.

What William Black is suggesting is that the ECB break the rules. The ECB is independent and apolitical - its executive members are economists, not pig farmers and schoolteachers who are elected representatives. You cannot blame them for following the rules that have been laid down for them.

Yes European monetary policy needs an overhaul, no the crisis mechanisms are not not working well, yes we need deeper fiscal integration and perhaps, to some extent, capital transfersm, but the ECB is only the messenger of European governments, shooting the ECB for executing its predefined role is a blatant example of shooting the messenger.

In fact the one time when the ECB has come in for deserved criticism, in my opinion, is when it has acted outside of what many of us (but not everyone) considers its official remit. I am referring particularly to buying up sovereign debt and interfering with peripheral governments and their own respective crisis policies pre-bailouts.
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