Ladies and Gentlemen, please welcome to the stage Dutch Disease, 2nd edition. This time it’s not natural wealth that makes you poor, it’s a natural consequence of a poor policy.
June’13 Newsletter: New Members Join The European Union, While Bail-Outs And Banking Regulation Are Questioned
Welcome to the clubs! Why should they join? The crisis is not over and doubts about the virtues of the EU and the euro abound. It may therefore seem surprising…
Despite being bombed by information, it seems we have forgotten the roots of the debt crisis. Instead we play a martingale game, where the only precaution after losing a round is to double the bet for the next one. The solution is not called EFSM, EFSF, ESM, SMP, OMT or banking union. These are just different names for a single problem: diluted responsibility. Unless we find a way to make local politicians pay locally for local promises, the euro project will be always in trouble.
In March 2010, when the Greek debt crisis was heating up, then-ECB president Jean Claude Trichet declared to the EU parliament that the “monetary Union in Europe is far more than a monetary arrangement. It is a union of shared destiny”. Less than two months later the ECB reversed its refusal to monetize debt and openly started buying government bonds in violation of its own charta. Germany also gave up its reservations about bailing out other countries. A first aid deal for Greece was signed and, because that didn’t help for long, a Euro rescue package to the tune of € 750 billion was put in place.
According to various Internet sources, Irish banks would have borrowed €51bn from the Irish central bank by the end of December, under an obscure program listed in the balance sheet as “other assets”. That is, the Central bank has electronically printed up new currency units for Irish commercial banks, without issuing debt behind these actions. The actions of the Irish central bank are not ignored by Germany, but fall out of the area of official monetary policy and appear to involve money creation outside the normal control of the European Central Bank.