Dr. Oliver Hartwich: "The ECB has exhausted all its conventional and unconventional policy options"

We have not heard so much recently about the euro crisis, but that does not mean that it has disappeared. On the contrary, it has become chronic and could turn acute anytime, as the eminent analyst, Dr. Oliver Hartwich points out:

The euro crisis has become chronic — but that does not mean that it cannot become acute anytime. Quite the contrary, the state of the eurozone is so bad now that even outrageous ideas for future monetary policy can no longer shock us.
Last week’s ECB media conference was a case in point. When ECB President Mario Draghi was asked what he made of “helicopter money”, he did not dismiss it out of hand. Instead he effectively told journalists that the idea of just crediting people with newly created central bank money had to be watched.
In central banking speak, this basically means that it is the next logical step.
But it is also an admission: The ECB has exhausted all its conventional and unconventional policy options. What remains in their toolkit are those policies that are plainly untested, untried and unworkable.
How bad must the state of an economy be when even zero interest and negative deposit rates do not trigger any inflation response? How bad when not even quantitative easing can revive economic activity? And indeed how bad when the very survival of the banking system depends on such trickery?
Let there be no doubt about it: Europe has manoeuvred itself into a dead end. Or more to the point: the ECB has.
The problem with the ECB’s policies is not so much that they may be technically illegal and certainly run counter to the spirit of the treaties under which the Bank was set up. The problem is that they entrench the eurozone’s reliance on ECB support to the point that it can no longer be withdrawn without causing widespread damage.
Let’s put it this way: If the ECB decided tomorrow, next year or in 10 years’ time that now was the time to return to more normal monetary circumstances, it could no longer do so. That is because it has already administered so much of its monetary medicines that withdrawal symptoms could well kill the patient.

Costs for the European Central Bank's megalomaniac new skyscraper are running out of control

The Brave New World of the European Central Bank.
(image wiki)

"A visitor approaching the building from the banks of the Main River enters a tall atrium made of steel, glass and pale stone surfaces. People shrink to the size of mice within the atrium. In the animation, the camera breezes past hanging gardens and giant steel beams that support the two halves of the building. There are substantial offices with floor-to-ceiling windows. The high point is the large ECB assembly hall for the ECB Council, under a glass dome on the 43rd floor, 180 meters above the ground. It's the kind of space that might accommodate a global government in a science fiction film."

Der Spiegel's description of the virtual tour on the ECB's website


Austerity for ordinary European taxpayers - luxury for the chosen few who will be working in the European Central Bank's new 45 story skyscraper, which according to the bank will "stand as a visible symbol of the ECB’s identity". That is, if an when it ever will be ready.

And the price tag for the taxpayers just keeps on growing:

Estimated costs for the European Central Bank's new headquarters in Frankfurt have more than doubled. As has been happening with so many major projects in Germany, its construction has been plagued by poor planning, oversight and execution -- and endless delays.

It was May 19, 2010. Jean-Claude Trichet, the ECB's president at the time, had invited his guests to a dicey part of the city for the groundbreaking ceremony. They gathered in front of the building pit, from which a futuristic tower was to arise: an architecturally thrilling, 45-story skyscraper, a symbol of the power of Europe's shared currency.

Three-and-a-half years later, in the fall of 2013, there is a different reality in Frankfurt's Ostend district. Instead of the original estimated cost of €500 million ($690 million), the entire project will now cost at least €1.15 billion and could even eventually climb to €1.3 billion. The ECB has also had to postpone its move. Originally scheduled for completion in 2011, the building is now not expected to be ready for occupancy until at least the end of 2014.---

The demands of the project's European managers were apparently as sky-high as the new tower. Vienna-based architect Wolf Prix and his firm, Coop Himmelb(l)au, had designed the building as two twisted towers connected by hanging gardens, made almost entirely of glass and steel. The skyscraper looks more like a giant sculpture than an office building.
With a number of euro countries groaning under their debt burdens, provoking angry protests from Greece to Portugal, the aesthetics and features of the ECB tower seem oddly inappropriate. Do the taxpayer-funded central bankers really need a headquarters building that is 30 meters (98 feet) taller and twice as expensive as the twin towers of Deutsche Bank, Germany's largest bank?
When the monetary watchdogs move into their new home, their offices are likely to be among the most expensive in the euro zone. As the complex will house about 2,000 employees and cost more than €1 billion to build, each workspace will be worth about €600,000, or as much as a very comfortable single-family home. In commercial real estate, €30,000 per desk space is usually considered "upscale."

Read the entire article here

Bundesbank boss Jens Weidemann knows his Goethe

Dr. Jens Weidemann knows his Goethe
(image by Bundesbank)

Jens Weidemann, the head of the German Bundesbank, is - fortunately - defying calls by politicians to tone down his criticism of the European Central Bank and its head Mario Draghi: 

Jens Weidmann said that efforts by central banks to pump money into the economy reminded him of the scene in Faust, when the devil Mephistopheles, “disguised as a fool”, convinces an emperor to issue large amounts of paper money. In Goethe’s classic, the money printing solves the kingdom’s financial problems but the tale ends badly with rampant inflation.

Without specifically mentioning Mario Draghi’s bond-buying programme, he said: “If a central bank can potentially create unlimited money from nothing, how can it ensure that money is sufficiently scarce to retain its value?” He added: “Yes, this temptation certainly exists, and many in monetary history have succumbed to it,” Mr Weidmann warned.

Although the remarks were in context - Frankfurt is currently marking the 180th anniversary of the death of Goethe - they defy calls by leaders for Mr Weidmann to tone down his criticism of the ECB, particularly at a febrile moment in the crisis. The launch by Mr Draghi of an unlimited bond-buying programme has boosted both confidence and markets.

Read the entire article here

It is true that "Super Mario´s" money printing scheme may have "boosted confidence and markets", for the time being, but it will not take long before markets realize that the ECB boss  is not only "disguised as a fool" - he is a fool. However, the politicians now celebrating the money printing program are even bigger fools. 

ECB boss Draghi: Eurozone countries should accept loss of sovereignity

European Central Bank (ECB) chief Mario Draghi is openly saying what eurozone political leaders do not - yet - want their voters to know: The member states will have to accept a loss of their sovereignity in favour of a central government.


Also part of his vision of a "growth compact," Draghi backed calls for a boost in the resources of the European Investment Bank and said EU funds needed to be "redirected" to low-income areas - ideas already floated by Francois Hollande, the frontrunner in the Sunday presidential elections in France.
"But the thirdly and most importantly is that we collectively have to specify a path for the euro. How do we see ourselves in 10 years from now ...We want to have a fiscal union? We have to accept the delegation of fiscal sovereignty from national to some form of central [government]," he said.
In getting there, politicians should however refrain from talking about a "transfer union" as a starting point, he said, in reference to richer countries automatically paying for poorer ones, a concept most loathed by Germany and its independence-wary Bundesbank.


Read the entire article here

It is also worth noting that Draghi, while in reality calling for a transfer union ("EU funds needed to be "redirected" to low-income areas") urges politicians to refrain from using the words "transfer union", because Germans do not like it.

Draghis views are of course not surprising. He is just doing what the EU political leaders have done already for years -  misleading and misinforming voters - and keeping them out of the EU decision making process. What is perhaps new, is that the unelected Draghi is openly recommending this deeply undemocratic way of treating the citizens of Europe.