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The despicables

Over the last week we heard some news that should have raised eyebrows (and fists). I can’t help but make a brief comment on them.

First there were the suggestions (link here) of the Vice Chancellor and Minister of Economics and Technology of Germany Mr. Philipp Rösler that Athens should cede control of its budget policy to European institutions. Apart from this being a proposition to cede sovereignty of the nation which is despicable by itself, the proposition also implies that Europeans (Germans maybe) can do a better job in managing the Greek budget. I wonder where Mr. Rösler finds the attitude to preach fiscal discipline to a country faced with a shrinking money supply, while standing on a country which faces a massive inflow of money. Yes, if money would fall from the sky, every government in the world would manage easily its budget.

It is interesting to see how the world has turned upside down over the last couple of years. It used to be the “reckless” Greeks who would inflate their currency to balance the government budget and the “disciplined” Germans who wouldn’t need any monetary stimulus to accomplish it. Nowadays, the roles have reversed: The Greek government tries to do the same things with what effectively is a tightening monetary policy and the German government is using massive quantitative easing to balance its budget. And this person is trying to give lectures on fiscal policy? Pathetic.

But the week’s paranoia and disgust did not stop there. The next article that drew my attention was even more incredible. As Bloomberg reported (link here), Greece’s creditors are pressing the ECB to participate in the Greek rescue and accept a haircut on its Greek bond holdings as well. This of course makes sense from their point of view, since there is no reason why their holdings should be subordinated to the holdings of the ECB. But the ECB does not want to take losses. Instead it is considering selling bonds to the EFSF at their purchase price. And here is why (quote from Bloomberg):

“Selling the ECB’s Greek bonds to the EFSF, which is directly backed by euro-area governments, would allow those assets to be used in the writedown without compromising the central bank’s independence.”

That should take every taxpayer covering the EFSF (mostly German) to the streets: the ECB is openly proposing dumping the losses to them. Not only has the ECB and the Eurosystem caused this crisis (I have explained here why), now it wants to transfer the losses on the writedowns from the banks (where they were originally) straight to the taxpayers of the eurozone. I could never have thought that a central bank, especially one as important as the ECB would be so fraudulent, so vicious, so unashamedly corrupt. People might indeed be worth of their leaders, but are they really worth of their money-masters? I hope not.

Final note: Mr. Rösler shares the view that the ECB should not take losses.

Discussion

6 thoughts on “The despicables

  1. I have browsed your posts and I find them very interesting!

    Posted by Klaus Kastner | February 8, 2012, 07:39
  2. Yes, I have read it but please bear in mind that my brains will be 63 years old next week…

    I have been in touch with Prof. Sinn & Co. on this subject over the last year and I will forward them your posts. Meanwhile, Wolfgang Muenchau – one of the most prominent German economic journalists these days – just published an article where he described Target-2 as the greatest time bomb of all. I agree with that assessment!

    http://www.spiegel.de/wirtschaft/soziales/0,1518,813992,00.html

    Posted by Klaus Kastner | February 8, 2012, 22:23
    • Then I would like to wish you a happy birthday in advance!

      I read the article of Wolfgang Muenchau and I definitely agree that TARGET2 is a time bomb. However, I disagree that we need a political union, especially right now. We don’t even need eurobonds. What we need is sensible central banking and true monetary union. I believe that the NCBs can easily turn TARGET2 from a time bomb that it is now into the solution to the euro crisis, as I have described in my simple proposal. This is a monetary crisis not a fiscal one, and therefore it should be solved by the appropriate authorities.

      Posted by 2mtm | February 8, 2012, 23:21
      • Well, the way I see it is that if you and I were in charge of the whole thing, the Eurozone would soon be in great shape!

        Posted by Klaus Kastner | February 8, 2012, 23:36
      • Agreed. The fundamentals of the eurozone are very good indeed, the only problem we have is the euro itself. If we fix the euro we will have a booming economy again that will pull the whole world out of the recession.

        Posted by 2mtm | February 9, 2012, 00:05

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