Sunday, July 7, 2013

ECB Already Lost Its Independence

Euro area inflation was 1.6 % in June, therefore beneath the close to two percent that the ECB targets. A normal central bank would now lower the base rate. Sadly, there is nothing ordinary about the ECB. Its goal is not to keep inflation close to a certain target anymore. Weidmann et. al. try to and are successful at enforcing so called "reform pressure" aka making sure that the pain in the crisis countries stays high.

A while ago Weidmann compared economics to engineering:

And much as engineers are accused of making buildings that are not earthquake-resistant, economists are accused of building design flaws into the financial and economic system, with whole nations now suffering under the consequences.
 Of course he forgot to mention that design flaws in buildings in fact lead to real life consequences for the engineer. For example the engineer who was responsible for the collapse of the roof of an ice rink in Bad Reichenhall was sentenced to 18 months prison on probation. We have strong evidence that austerity is not only self-defeating, but causes deaths, too. That is what was to be expected when one forces other countries to reduce their health care expenditure. This policy causes Greece to become more like the USA, and not the other way round. The ECB officials know that 40 % of the population have been pushed out of health insurance on demand of the troika (of course nobody is responsible for anything as always). Greek hospitals now look much more like third world clinics, lacking even the most basic utensils and medicine. An engineer responsible for something like this would definitely not be running around claiming that we need less structural integrity more structural reforms; he would be in prison.

This is the bitter reality Weidmann's "reform pressure" and he wants to keep it up. So again, even though inflation is below target he refuses to agree to a lower base rate. According to Spiegel, Weidmann and Asmussen "reasoned" strongly against sound and independent central bank policy in favor of senseless pain and death. Peter Praet and Mario Draghi actually wanted to lower the fixed rate to 0.25 %. But let's not forget the Netherlands, who are in recession, but still Klaas Knot was also against the ECB actually trying to fulfil its mandate. Hopefully, our NSA overlords or a whistle blower soon releases those "arguments" against a lower base rate. I have a few ideas what they might have been:

"Guys! I just read about this woman in Greece [sadly a true story], who cannot afford treatment for her breast cancer, because we destroyed  the welfare beast in Greece. It now has breached her skin and is wetting her clothes. Guys! We shouldn't lower the fixed rate, since that is just hilarious!"
"Guys! Lowering the base rate now, reduces the chances for a European Breaking Bad in the future, and I love that show!"
"Guys! Just realized that if we turn southern Europe into third world countries, vacations for us Germans will become cheaper."
"Guys! People having access to pain-killers in hospitals is the road to serfdom!!1!" 

Of course, Weidmann, Knot and Asmussen are fully aware that austerity has horrible consequences, but sadly it is unlikely that they accept any responsibility for the outcome whatsoever.  So it is much more likely that the arguments went something like this:

"Yada, yada competitiveness bla bla structural reforms yada yada risk .... political independence ... future inflation .... unit labor costs. Slippery slope!

Meanwhile in the real world, even Germany is becoming less competitive because - fun fact - today's investment is tomorrow's competitiveness and domestic new orders for investment goods released on Friday were at the lowest level since July 2010. In fact, if there is no improvement soon 2013 will look much like 2005 on investment. Germany will most likely not see any growth this year, all the talk about the successful structural reforms is just that. Of course, neither the German government nor economists will claim responsibility for stagnation. They will blame Greece, Spain, and I guess China, and point out that others are doing worse than Germany.

The ECB has become the slave of a policy designed to destroy the welfare state and the people responsible for that will tell everybody, that is not yet sick of their denial of reality, that they fear for central bank independence. They want the crisis to continue ("reform pressure") to implement their  dystopian fantasy where everybody is totally free of a safety net, and most likely a job, while at the same time every step is being watched by surveillance algorithms to keep us them safe. They will keep on telling us about new agendas, that - by structurally reforming away even more jobs - will lead to growth, somehow increasing the confidence of the private sector. Every bad outcome will be blamed on lacking willingness to reform. That will keep us off the road to serfdom!

An idea failing as miserably as neo-liberalism would be dead in engineering. But these people are still respected economists causing pain, suffering, and death everywhere they can, while blaming everybody else for their vision failing to deliver positive results. So make no mistake the ECB is not independent anymore. It, on behalf of the German government, pushes through an economic model everywhere in Southern Europe, that is based on the silly assumption state bad - private good. The unwillingness to lower the fixed rate, even though inflation has been significantly lower than the targeted 2 % shows that there is no interest in actually ending, or at least reducing the damage caused by the crisis in the minds of many ECB officials.The worst crisis since the WWII has turned into a necessary tool to achieve more privatisation and less welfare state. These aren't actual structural reforms. They are using a hammer to wipe out every achievement of the last decades and in the meantime they tell us it is for our own good, and we are letting them get away with it.

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