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The ECB’s Forked-Tongue Policy To Save The Euro

testosteronepit's picture




 

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

In theory, Germany’s Federal Constitutional Court could throw a monkey-wrench into the efforts to keep the Eurozone duct-taped together; it could rule against the ECB’s money-printing and bond-buying mechanism, lovingly dubbed Outright Monetary Transactions. It was launched with fanfare last September. Actually, not with fanfare but with a few vague words, uttered by ECB President Mario Draghi himself, including the magic one, “unlimited.”

A word so powerful that it would bail out speculators and banks that had bought crappy Spanish and Italian debt at steep discounts. Bonds and stocks surged – as did unemployment and other problems, but what the heck, OMT wasn’t about curing sick economies. It was about a central bank promising to bail out speculators.

During oral arguments on Tuesday and Wednesday, the Court weighs if OMT violates the constitution’s requirement that budget matters be controlled by Parliament, but a ruling will be delayed until after the general elections on September 22. If the Court, which has no authority over the ECB, rules that aspects of OMT are unconstitutional in Germany, it could forbid the Bundesbank from participating in the one measure that has kept the Eurozone together. The Eurozone as we know it would unravel.

In practice, the Court would never do that. Given how it has ruled on euro-related issues so far, it will find a way out of the debacle, regardless of what it says in the constitution. And if it really wants to throw the book at the ECB, it could nod with an impish frown, impose some stipulations, and rubberstamp the rest.

But that hasn’t kept the mess from ballooning beautifully out of control in Germany where the ECB’s efforts to save the euro and itself – without euro there would be no ECB – are viewed with a decided lack of enthusiasm: 48% of the Germans side with the 37,000 plaintiffs, believing that the Court should stop the ECB’s whatever-it-takes-to-save-the-euro approach; only 31% believe that the plaintiffs are wrong; and despite the dense coverage in the media and in every corner of the internet, 21% still have no opinion.

Bundesbank President and ECB board member Jens Weidmann lambasted OMT from day one as “equivalent to funding governments by printing money,” warned of the risks of these measures, and questioned their legality under German law. He claimed that the ECB had overstepped its mandate by promising to fund the deficits of teetering countries, ultimately exposing German taxpayers to the risks and costs of bailing out speculators in foreign debt.

At the hearing, Weidmann faces a former associate and now antagonist, Jörg Asmussen, member of the ECB’s executive board, who’d praised OMT last week as “probably the most successful monetary policy measure undertaken in recent times.” Then, just before the hearings, he counter-attacked in the mass-circulation tabloid Bild:

"When we announced the program, the Eurozone was near uncontrolled disintegration. Important companies and banks began to prepare for it. At that time, the ECB was the only European institution capable of taking action, and it had to make clear to every speculator, ‘Do not mess with the ECB.’ The euro will be defended. The markets have learned the lesson.”

Draghi and his ilk must be getting cold feet. Over the last few days, a 52-page document that the ECB submitted to the Court in defense of its policies surfaced. In it, the ECB declared that its “unlimited” purchases of debt were suddenly not unlimited at all, but were in fact limited to €524 billion!

It had to do with internal limits. The OMT program could only purchase debt that would mature in 1-3 years. As of December 2012, Spain had €143 billion of this type of debt outstanding, a mere 26% of its total debt, and Italy €343 billion, or 32% of its debt. The ECB assured the court that it actually wouldn’t even go that far.

The message should have been a deafening alarm for the market; it should have sent speculators scrambling for the exits. Well, some scrambled alright. But the slick calculus wasn’t meant for them. It was meant for the justices of the Court, perhaps to fool them, perhaps to offer them a fig leaf. And market participants already know that the ECB doesn’t have to stick to these internal limits, or any limits; it has already figured out how to get around treaty limitations against buying sovereign debt.

And on Monday, Draghi said in an interview on German TV that the ECB would suddenly not use its OMT program to save bankrupt countries – or as he said more politely, “we will not intervene to ensure the solvency of the countries if they are profligate.” So profligate countries would be allowed to go bust. But – and there his tongue split in two again – “if there is a confidence crisis in the euro which is threatening the solvency of the countries not beyond what their fundamentals are, then we are ready to intervene.”

The plaintiffs, who want to keep the Bundesbank from participating in these interventions, were not impressed. Eternal euro-critic and Member of Parliament Peter Gauweiler (CSU) assured his fellow citizens that OMT would turn the ECB into an “uncontrolled power.” In exchange for giving up control, Europeans could live “in a brave new Huxley-world of the unlimited debt,” a world where “money is no longer earned but printed.”

So the Eurozone debt crisis remains “solved,” and there is nothing to worry about, other than a few cosmetic details, for example that the ECB, in order to keep the monetary union glued together, has one message for the Court and another for the markets – based on its forked-tongue policy.

Just when you thought the concept of universal justice was dead, a courageous Spanish judge did what no other judge in the Western world, bar Iceland, dared to do. Read.... The Unthinkable Happens: A Former TBTF Bank Chief Goes to Jail

 

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Tue, 06/11/2013 - 11:28 | 3646205 monad
Tue, 06/11/2013 - 10:13 | 3645866 luckylongshot
luckylongshot's picture

The sooner the Euro farce ends and the criminal private bankers that own the ECB and terrorise the European Public are stopped, the better.

Tue, 06/11/2013 - 10:08 | 3645842 Hedgetard55
Hedgetard55's picture

Conservatives understand the following, liberals do not.

 

Jer 17:9 The heart [is] deceitful above all [things], and desperately wicked: who can know it?
Tue, 06/11/2013 - 09:44 | 3645719 Edward Fiatski
Edward Fiatski's picture

Hail Europa-Babylon!

Guess that HS didn't pan out - I smell burning shorts... Lotsa stops above 1.33.

There's no Plan B. :-)

Or perhaps there is, but we can't afford Plan B on Humanitarian scale here in Europe, so European Union it is then.

Tue, 06/11/2013 - 08:21 | 3645402 shovelhead
shovelhead's picture

Suck it up Germany...

Douchebank is a WMD and the bankers must be placated.

Or else.

Euros. Euros for all.

Tue, 06/11/2013 - 08:17 | 3645396 Coldfire
Coldfire's picture

Yes, those government employees in Karlsruhe will get right on this. After the election. Because it is such a complicated issue.

Tue, 06/11/2013 - 08:05 | 3645372 IamtheREALmario
IamtheREALmario's picture

It is disappointing to think what is done with printed money. It is used to defraud, control and steal from the workers who earn their money through the creation of value. My personal definition of evil has to do with the effect of one's acts on others. If one's acts are knowingly harmful to others then they are evil.

There are many people and actions that originally had good intent, but have been twisted to be evil or tools of evil. I find it characteristically nonhuman or sociopathic/psychopathic to not take into consideration ones acts on others and let that be the guide for whether they should be done, no matter the personal gain or whether they "can" be done.

People guided by a psychpathic nature certainly are not advanced humans. People who use their abilities to do evil acts are not advanced humans. They are the ones holding the human race back.

Tue, 06/11/2013 - 08:09 | 3645382 philipat
philipat's picture

Primarily Banksters, Politicians and the Complex. Unfortunately, they are in control. So now what?

Tue, 06/11/2013 - 07:33 | 3645307 Peter Pan
Peter Pan's picture

The time has come to call Europeans what they really are.... EURO-PEONS.

I cannot believe that with over 500 million people, the continent that once used to shoot politicians and hang them and start world wars with the drop of a hat, are now allowing this madness to go on with every shade of idiocy one can imagine.

 

Tue, 06/11/2013 - 08:11 | 3645386 IamtheREALmario
IamtheREALmario's picture

Maybe the disconnect is in the assumptions about the veracity of the history books. All wars have been for power and control. For the past few centuries ALL WARS have been created and funded by the bankers as a means for them to indebt nations and profit at the expense of humans.

Now that the bankers are fully in control, they would certainly not declare war upon themselves and no one else is quite so psychopathic to think that murdering people for profit is something to be done.... only bankers.

Tue, 06/11/2013 - 07:39 | 3645271 philipat
philipat's picture

The timing of the German Elections looks increasingly problematic wrt the "Forked Tongue" Eurocrat policy? More particularly now that Greece needs yet another bailout. That should go down really well in Germany.

The straight talk of Farage seems to be catching on all over Europe, except in Brussels of course.

Tue, 06/11/2013 - 07:39 | 3645321 Peter Pan
Peter Pan's picture

A bailout does not serve the interests of Greece or Germany. It just suits those in suits.

Tue, 06/11/2013 - 07:45 | 3645333 philipat
philipat's picture

Yes, especially the Banksters. Club Med should do some research on the frozen North: Iceland.

Tue, 06/11/2013 - 07:09 | 3645253 falak pema
falak pema's picture

sterilised as the ECB says; as opposed to naked QE by FED.

Splitting hairs, as what the FED does so outrageously is in reserve currency, also reflecting the 67/25 muscle ratio relative to euro on the financial markets. Anyways, monetary solution to structural problems just pours oil on the subsurface fires.

So with Japan now spinning paper like toilet roll and Uk doing its bit, why is the testosterone pit bubbling on Frankfurter cooking; lets wait to see what Karlsruhe proposes as legal rap on ECB fingers; before we jump to conclusions.

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