The ECB’s new scheme to buy unlimited quantities of sovereign bonds — provided that the government of said countries submit to outside review of their fiscal conditions — has been hailed as the game changer that Europe has been waiting for.Finally, the ECB’s unlimited balance sheet will be put to work to lower borrowing costs, and give countries breathing room.
But in taking a big step to placate markets, the ECB is seen as inflicting damage on European Democracy.
Mario Draghi is now clearly the most powerful man in Europe, and he’s almost dictating to governments what they must do in order not to collapse.
CNBC’s Silvia Wadhwa is one of the best, most veteran ECB reporters in the world, and she has a must-read takedown of Draghi on the subject of his subversion of democracy.
Let´s just consult the ECB mandate. Under the heading “Independence” you find the following sentence: “Neither the ECB nor the national central banks (NCBs), nor any member of their decision-making bodies, are allowed to seek or take instructions from EU institutions or bodies, from any government of an EU Member State or from any other body”.
“So what?” you say? With its OMT program the ECB is neither seeking nor giving instructions. Ahhh, not so fast. With its OMTs the ECB is setting politicial pre-conditions (the often-used buzz word “conditionality”) for executing monetary policy in order to safeguard price stability and the functioning of monetary transmission processes as laid down in its mandate. In other words, the ECB is saying, we will only do our job if certain political conditions are met.
It’s really that simple: either bond purchases of euro countries where yields are blowing up in a fashion that threaten the functioning of the markets are within the ECB mandate. Then the ECB should embark upon them whenever it sees fit. Or they are not within the mandate; then it should jolly well stay away from them, because it would be illegal. Period. End of argument.
But to say “we are acting within our mandate”; but we shall only do so, if you (the country in question) deliver on certain political conditions; then — I am sorry — the ECB is taking on a role it was never designed for and that is certainly outside its mandate. The ECB was designed for supporting “the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community” (in as far as it doesn’t´t infringe upon the primary mandate of safeguarding price stability). Supporting policy, not setting conditions for it or setting an agenda for which economic of financial policies a given country embarks upon.
She goes on to note that she has no problems at all with bond buying, which she thinks is clearly within the ECB’s mandate.
The European Central Bank has fired its magic bullet. By promising “unlimited” purchases of sovereign bonds, Mario Draghi, the ECB’s president, may have kept his pledge to do “whatever it takes” to save the euro. But in rescuing the currency, Mr Draghi’s magic bullet has badly wounded something even more important – democracy in Europe.
As a result of the ECB’s actions, voters from Germany to Spain will increasingly find that crucial decisions about national economic policy can no longer be changed at the ballot box. In Germany, in particular, there is a growing realisation that the ECB, an unelected body that prides itself on its independence from government, has just taken a decision that has profound implications for German taxpayers – but one that they cannot challenge or change.
Rachman notes that this is having very strange effects on domestic politics. Right and left divides are giving way to national divides:
…the eurozone crisis is increasingly polarising European politics along national lines. In Italy and Spain there is now something close to a national position – uniting leftist and rightwing parties – against what are regarded as arrogant and self-centred German policies. In Germany, however, there is a left-right consensus that austerity in southern Europe must be the price of bailouts.
Needless to say this is happening in Greece as well, as the new divide is between the mainstream parties (old rivals PASOK and New Democracy) and radicals (the communists, Neo-Nazis, etc.).
Even George Soros uses the term “hegemon” to described what Europe should become.
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