Tag Archives: European Central Bank

An account of how the European Central Bank managed to keep the Eurozone together

Gibran Watfe, 14 September 2015

It was an unusual Monday morning on May 10th, 2010 in Frankfurt. During the weekend, the heads of state, the president of the European Commission and the president of the European Central Bank were hastily looking for a solution to the imminent euro crisis, before markets would open on Monday morning. It must have been a stressful morning for the ECB staff in DG Market Operations, because it was the day when the ECB announced that it would buy large amounts of government bonds from troubled Eurozone countries in the framework of the Securities Markets Programme. Continue reading

Greece Will Not Default

Phedon Nicolaides,  14 June 2015


Source: University of Illinois, 2011

As the markets are becoming increasingly convinced that Greece will soon default, here is a bold prediction: Greece will not intentionally default. The word “intentionally” is a hedge against accidental default.

Why do I even entertain the idea that I know better that the markets? The reason is simple. Until three days ago most economists had not considered how a judgment of the Court of Justice would have changed the trade-off between repayment of loans and default. Before I explain the significance of that judgment, we need first to understand the options which are open to a sovereign which contemplates defaulting on its obligations. Continue reading

Did the ECB lower borrowing costs for banks and governments?

WATFE Gibran, 1 February 2015

Last week, the European Central Bank (ECB) announced the launch of a massive program to buy sovereign bonds of euro area member states. Although this decision has already received considerable public attention, it is not the first time that the ECB buys sovereign bonds. What is new is the scale on which the ECB will buy securities. In fact, 60 billion Euro worth of sovereign (public) and covered (private) bonds will be purchased per month between March 2015 and at least until September 2016.

Source: ECB, own calculations

Source: ECB, own calculations

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We need a Eurozone Parliament

I was happy to read Wolfgang Schauble’s recent commentaries on the necessity to create a Eurozone Parliament. I would add, it should possibly be a democratic chamber set up as part of a Eurozone government, possibly less dysfunctional than the EU’s.

The German finance minister is essentially saying is that we need a whole new institutional infrastructure to govern the Eurozone in a) an efficient way and b) a democratic (better, legitimate) way.  Continue reading

The ECB monetary policy dilemma

There is in Europe a widespread contempt in judging the ECB’s current monetary policy decisions, almost as if virtually any economist, analyst, student or politician could fare better than a panel of respected central bankers. Continue reading

What if…

European elections are still a few months away, yet most commentators are already speculating on who, amongst the current Brussels “mandarins”, is going to be elected (but it’s safer to say “appointed”) in the EU top posts. However, and once discounted the increased loss of relevance of certain European institutions, there is in Brussels a worrying tendency to disregard the multiplying signs of rising extremisms that could – if the result confirms the early polls – change the face of the Parliament and, more in general, of European politics.

Politicians in the European capital seem to completely disregard signals coming from electorates all around Europe: a circumstance that is even more discomforting given that – this time – political parties will be accountable for their choices of candidate for President of the Commission. Recent surveys and electoral tests have shown strong hints that a solid performance from the so-called “populist parties” is likely: in the recent German elections, the AFD party clinched almost 5% and nearly made it to the Bundestag (and all odds go in the direction of an increase next spring), while the French “Front National” might possibly be the first party in the country with almost 25% consensus (and it recently won a second round election in a small city, defeating an alliance of UMP and PS voters). In Italy, the 5Star Movement also enjoys a similar backing (20-25%), while the UKIP in England as well as the Spanish extreme left are on the rise as well. Austrians “liberals” (who appear to be not so liberal after all…) also deserve close attention, amid their recent score in the country’s political elections, as does Golden Dawn, boosted by criminal accusations that determine, as usual in these cases, an aura of martyrdom very popular with its most fervent supporters.

On the other hand, for “traditional” parties it’s “business as usual”: there is very little preoccupation and even less talk of a possible major defeat. The line of reasoning is always the same – “we’ll pull it through”. But what if, this time, so-called “populist” parties make an amazing performance or, even worse, the group is currently known as the EFD becomes the biggest one within the EP?

Not much in policy terms, I suspect: the “Euro-skeptic” formations are very diverse and pursue different policies in their countries. In the EP, they are very much united only by their loathe for the European construction and by their desire to revert to nation states, while coherent and solid policymaking – even in the direction of a “deregulation” or “re-nationalization” of EU competences – will hardly be their top priority.

However, the political meaning of such display of power can be enormous for the Union, just at the time when it tries to move forward with some decisive changes towards supranationalism (not federalism, which is a completely different matter). It will push traditional parties “towards the extremes”, in search of the lost consensus, it will rise awareness that citizens do not want “more integration” and it will once and for all wipe out the neo-functionalist idea that a “shift of loyalty” towards the center would, sooner or later, occur. In fact, if anything, citizens’ “loyalty” is shifting back to nation states.

Ironically, all this will happen in the first European elections in history where participation will – most likely – be higher than in the previous one.

All in all, talks of democratic deficit and increased legitimacy of European institutions as well as the emphasis on the importance of the upcoming vote are dangerous for traditional parties – as they increase the reject for them amongst European voters – and should be cut very short. In a rare moment of truth, an MEP once told me that the only “federal” organ of the EU is today the European Central Bank, which has not been elected and whose “independence” – a circumstance that has allowed it to take decisions based on the interests of the Eurozone as a whole – is currently considered by many countries as a mistake.

When, a few months ago, I wrote that European federalism is today an illusion and that Barroso was either delusional or completely phony in publicly affirming how close the objective was (again, whose objective?), I was branded as a “Euroskeptic”. They even interviewed me to prove that “College of Europe graduates were turning agains the European construction”. What I was instead trying to say is that there is amongst European voters only one element of consensus:  EU (and the Eurozone) work well when they don’t have the arrogance to claim some sort of political legitimacy, or state plans to build a “federalist” (again, with what public support?) union.

I also meant to say how dangerous it is to mention an ambitious “democratic” idea when there is total lack of public support for it: it’s as if an untalented football player communicated to the opposing team’s defense his intention to score an inverted kick. At best, he has made his intentions public to his opponents; at worst, he has motivated them to be even more cautious about his moves. In both cases, given his lack of talent, he is going to embarrass himself.

The overwhelming majority of politicians in Brussels are notoriously unknown amongst European voters: given their (lack of) ability to take the stage, we could only hope for the sake of the Union’s future that it stays this way.

Alfonso Ricciardelli

Karlsruhe Blues

Investors are watching with bated breath for the outcome of this week’s two-day round of hearings at the Federal Constitutional Court of Germany. In a case brought before the Court by  the academic  founders of the new “Alternative for Germany” political party among others, and whose petition was signed by 35,000 Germans ,  the Court has to judge on the compatibility of the ECB’s Outright Monetary Program with the German Constitution.

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