World Economy

ECB Risks Destroying Euro

ECB Risks Destroying EuroECB Risks Destroying Euro

Has the European Central Bank gone feral? If it has, this is an appalling vista which must be dealt with. But it’s not clear how.

It’s easy to criticize the ECB for its actions, inactions, and general antics during the European debt crisis, NewsNow reported.

It’s little unfair too, as it has tried to do something, if usually too little and too late. But at least it has tried.

But sometimes the wrong thing is the wrong thing and the ECB has been doing the wrong thing.

However, it is clear now that the ECB is no longer a technocratic institution but has rather become deeply politicized if not ideological.

Central bankers are among the most powerful people in the world, and when they go rogue they threaten everyone. Let’s look at what the ECB is supposed to do. Its overriding mandate, as laid down in article 127 of the treaty establishing it, is to maintain price stability.

Price stability here has been defined as inflation being at or around 2%. It is important to note the ECB council defines price stability. It is its own master.

It could decide price stability is inflation at 4% or 9% or any level. It has chosen 2% and is nowhere close to that — even choosing its own benchmarks it is failing to do its job.

  Beefed-Up Version

However, while that is what everyone always thinks of the ECB as being, a beefed-up version of the Bundesbank designed to fight inflation at a European level, it does actually have legally binding mandates to allow it to do other things.

The ECB has a mandate which is arguably at least as wide as that of the Federal Reserve. So long as it does not compromise price stability, it can do most anything and should act to further the aims of the union of which it is a pillar.

That it chooses not to operate so means that it is making a deliberate choice.

It is choosing to operate in a deliberately political and etiological manner. It has aligned itself with one bloc of nations to the detriment of others and is now acting in a manner that makes one wonder if and how it can be made right.

In Ireland, then in Cyprus, now most clearly in Greece the ECB has chosen to act not just to not pursue these aims but to act in a manner certain to result in their not being met. First, how exactly will the cutting off of liquidity to Greek banks help anything? It is a naked political play to ratchet up pressure on a sovereign engaged in political dialogue towards a political end.

These banks were stated, by the ECB itself, to be solvent.