The conflict between ECB and Bundesbank.
Given the results of the last meeting of the ECB Governing Council (2/2/2012) and the following ECB Montly Bulletin (August 2012), it is worth to come back to what real news have been introduced by President Mario Draghi.
As expected, Mr.Draghi repeated that the Euro is "irreversible", and the ECB will adopt all necessary instruments for its protection, defeating the speculators who bet on its disintegration. An important statement, although hardly surprising. A President who is at the very beginning of his long mandate would not question the Euro’s safety. The novelty was the public and intentionally reiterated comment on the isolated opposition of Bundesbank President, Jens Weidmann.
How could Mr. Draghi take the unusual step without worrying about the repercussions from Germany? Probably, the ECB president is aware of the need of Angela Merkel to support the Euro’s defense against different and more radical German opinions. She cannot afford the risk of facing the 2013 electoral contest, having presided over the disintegration of the creature of her old sponsor, Helmut Kohl.
However, this is only one side of the matter. Angela Merkel cannot defend the Euro, and therefore assist the countries in trouble struggling against speculation, in essence, Spain and Italy (Greece is, by now, believed lost), without submitting this help to the conditionality and controls by ECB and European Commission (with or without the IMF's participation), as it has been the case of Ireland, Greece and Portugal.
And that's exactly what Mr. Draghi said. The governments of Spain and Italy may be secured from speculation, but must previously apply for the aid to the European rescue Funds (EFSF /ESM). Following their request, European governments who preside over the Funds’ functioning will establish the conditionality and tools to monitor their implementation. In essence, two out of four major founding countries of the Euro will be a “commissariat”.
To sweeten the potion, this will be considered as a step towards a fiscal union and an anticipation of the European Political Union. A strange perspective of Union, hard to sell to the people, as it looks more like a process, by which some countries will be subjecting others to semi-colonial status.
Mr. Draghi’s recent statement also has a contradictory side. If the ECB may decide to purchase sovereign short-term bonds as a proper monetary policy measure bound to insure the functioning of the euro area’s financial market, why should its implementation be subject to prior agreement of the governments? If Central Bank intervention requires the prior decision of governments and, in last instance, Germany’s consensus, on which depends the achievement of the majority required to activate the bailout funds, it is tricky to see where is the independence of the ECB, insistently claimed as inviolable.
As Sebastian Mallaby writes in the Financial Times (August 8) it is clearly questionable why the ECB has made available more than a trillion euros, almost free, in long-term loans to private banks - which they partly deployed to buy sovereign bonds, gaining on the interest rate differential - instead of directly purchasing them, at a lower rate to clip the wings of the speculators.
The explanation lies in the fact that the sovereign debt crisis has been considered by the European technocracy and by the large majority of center-right government of the eurozone a good opportunity to force neo-liberal policies of "austerity and structural reforms". A politics that is deepening the present crisis, creating recession and unemployment in a vicious cycle, which the future historians will regard as a telling example of economic and political schizophrenia.
Mario Monti’s recent controversial interview to Spiegel (August 6, 2012) should be seen in this context. According to him, the role of national parliaments has to be reduced to implement the European policies needed to face the crisis. Parliaments are, in other words, an obstacle; they have to be “educated”, he said. There is a grain of truth in this. It is not a coincidence that the countries that failed to implement the policies set out by the Frankfurt-Brussels consensus, have been constrained to replace democratically elected governments by technocracy.
The Monti’s mistake or, may be, the lack of political tact, was in underlining the truth about the diminished role of the old democratic institutions, notably, parliaments, whereas in Germany the devotion towards the parliamentary democracy is rooted in the tragic political experience of the first half of last century.
Germany can take steps to dismiss governments in distressed countries, reducing them to a semi-colonial condition, but cannot accept any questioning of the sovereignty of the German Parliament and the Constitutional Court itself. Mario Monti's mistake was to have said in the wrong place (in Germany, not in a speech to the City or Wall Street) what he really thinks about the situation of democratic regimes in the face of the current crisis.
(August, 14 2012)