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It’s Taps for Europe’s ‘Last Honest Men’
Mario Draghi, feather merchant to northern Europe, is once again plying his dubious trade, this time with a slick sales pitch designed to persuade Germany that he can “save” Europe with a financial scheme that makes alchemy look respectable. The challenge he faces is more ambitious than merely putting another dab of lipstick on the PIIGS. Rather, it is like asking the Germans to press their noses to a sardine’s armpit and have them come away reassured they’ve smelled fine perfume. In Berlin to deliver a tightly scripted speech that was intended to give Germany’s parliament political cover for doing the wrong thing, Draghi told members he was “here to listen to your views on the ECB, on the euro-area economy and on the longer vision for Europe.” Translation: “This is a stickup. Give me the money now and don’t try anything foolish, because I am desperate.” True enough. But will German bankers simply roll over? In all probability yes, given Merkel’s damn-the-torpedoes determination to do what every politician must these days in order to survive – i.e., kick the can down the road for as long as possible.
If and when they run up the white flag, the bankers will be surrendering more than just German treasure. For in the by-now terminally ethereal world of global finance, they are the last honest men, steeped in the agonizing lessons of the Weimar hyperinflation of 1921-23. Now they are being asked to sanction a deal that would give Draghi the ability to create unlimited sums of digital money so that the central bank can buy the bonds of countries no longer able to pay even the interest on those bonds. Such measures will of course have no impact on the EU’s moribund economy, especially with Germany’s unexpectedly steep slowdown threatening to push all of Europe into a death spiral. This new crisis, manifestly unthinkable to economists just six months ago, will make it even harder for the German people to allow Merkel to issue Draghi a blank check. But it must and will be done, since there are no economic solutions at this point, only politically expedient ones.
‘Bernankean’ Aspirations
Merkel’s most reliable ally in bringing Germany’s recalcitrant, quaintly old-school bankers to heel is a news media that has sunk to the level of shameless complicity in propagating a quack Theory of Quantitative Easing that is absurd on its face and easily falsified. Here’s how the Wall Street Journal attempted to tiptoe past the implication that Draghi is seeking nothing less than Bernankean powers to gin up unlimited sums of debt-based money: “Unlike a previous limited plan that failed to stem the crisis, the ECB can now undertake open-ended purchases.” How very nice for the ECB. But we won’t hold our breath waiting for the Journal’s op-ed page to explain what the euphemism “open-ended” actually means. Nor do we expect any journalist to challenge Draghi’s meaningless promise to “remain permanently alert to risks to price stability.” If enabling the printing of a trillion more euros is compatible with price stability, then issuing wampum as legal tender is the path back to global prosperity.
Most challenging of all for Draghi will be surmounting the legal hurdle of an EU constitution that clearly and explicitly forbids the purchase of sovereign debt by the ECB. Although Draghi insists that his bond program won’t violate ECB rules against financing governments, there is no legally getting around the fact that it will. Assuming Europe follows America’s promiscuous example when it comes time to expediently misinterpret the ECB’s charter, what hope is there that mere laws will ultimately stand in the way of economically suicidal folly?
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"...there are no economic solutions at this point, only politically expedient ones.."
Worth repeating.
does he look like someone who will have a peaceful end?
sure, once the rope stops swinging...
The only solution is to go back to national currencies --in the past the Gaullist argument against this was that the US would burn the new oil surplus but european oil and gas consumption is declining anyway.
We must try to understand that the Anglos post war have run Europe (now via the FED back office in the ECB) much like India during the age of Empire - a country in physical surplus to the mother country.
There is no point to Europe other then to keep the Anglo world in physical good trade deficit.
Its time to end this sick experiment.
Great Article. Nice summary of what the plan is in Europe, for those who are not up to speed.
Another tip: You know Drahgi is lying if you see his lips move.
"You know Drahgi is lying if you see his lips move."
I guess it's standard training at Goldman Sachs.
Bernanke and the U.S. have set the worst example possible.
No doubt Euro politicians will point to the U.S. and say:
"See? Look. It works there. Look at their stock markets, look at their economy. They are in recovery. QE and Keynesian debt for a debt crisis works. If only we can do the same thing the world economy will recover."
And thus they will take another step onto the path of no return, following the healthiest looking draft horse of all the horses on their way to the glue factory.
yeah, but continental euros don't follow every example or advice - ask the exasperated Brits
currently the raised flag spells "Austerity". Big, big Compact Treaty on that about everybody balancing their budgets. Huge effort needed to get so far.
see here http://en.wikipedia.org/wiki/European_Fiscal_Compact
Austria, Cyprus, Greece, Germany, Italy, Portugal, Slovenia and Spain have signed (8). Another four and it's the "law of the land"
Of course this can still change. Nevertheless it's refreshing
Ireland is practically number nine (they had a referendum on that) so it's another three to go.
at least the irish aren't so exasperating to the brits this time around. looks like they took their medicine like good little boys. shhh, nobody mention iceland - they might all get ideas.
seems to me that a few articles like this and the tone around here, at least in reference to our betters, is becoming a bit brash...
now if the damn americans could fix that by bringing this internet thing to heel, we'd all be on board. happy bitchen days again!
All we need to do is have the Fed buy infinite European sovereign debt, and the ECB buy infinite US Treasuries. This will ensure governments can always hire enough hole diggers to ensure full employment. I have a model that proves it.
You can send my Economics Nobel Prize to me in the mail.
None at all, especialy if its a law that needs to be steamrollered to save banks and politicians from the cosequences of greed and deception.
On the Slog site, there is some rumour of a last ditch solution to ban the private sale of gold in the EZ and to issue ECB eurobonds backed by physical gold. I imagine the ECB would be expecting Germany and Italy to help out with that, no wonder they want Berlusconi locked up and Germany want to verify their gold holdings.
if you want to ban or confiscate gold you need an obedient nation, first. or it won't work. the EZ is composed of lots of nations where the general population would laugh about it and carry on, regardless. just have a look at the "grey economy" they generally have or how personal gold is kept out of gov's reach
further, it's way too early for the EZ to issue anything backed by phyz. generally you do this only after you raised rates to 18% and you still have an apocalyptic inflation or after a hyperinflation. currently the EUR is not in danger of a HY (though there is a very small chance for the USD and/or the GBP).
Sorry, the Slog is a wonderful blog which I enjoy very much but sometimes it is economically naive and shows some strong British anti-euro-whatever bias
Ghordius; I think it was meant to imply a last ditch attempt to save the EZ when all else fails. But when you have unelected sociopaths making the rules, who knows?
Look, perhaps Draghi is a sociopath, but The Slog hints at a proposal to be put into the not yet born Fiscal Union Treaty, which would have to be approved by legions of elected politicians and pass several referenda in a number of countries.
IMO The Slog is making a goldbug reccomendation (good) but sprinkling it with BS rumours (less good, IMHO)
War is peace,
printing means price stability
and the earth is flat
MANBERNDRAGHI