ECB runs scared of the consequences of its actionsECB runs scared of the consequences of its actions
Last Updated on Wednesday, 13 April 2011 12:40 Wednesday, 13 April 2011 11:30
The ECB is running scared of the consequences of its own actions. While protecting the largest members in the Eurozone, Germany and France, it neglected the peripheral countries with its interest rate policy. Low interest rates fuelled property booms in many of the peripheral countries and lax regulation from the ECB allowed national central banks to turn a blind eye to inter-bank lending that was spiralling out of control.
The ECB must have thought they were doing fantastic - unrivalled growth throughout the eurozone, full state coffers and low unemployment. Either they wilfully ignored past experience of property bubbles or they were too incompetent to notice. But when the crash came the ECB were as unprepared as anyone else.
Now that the ECB has learned the result of property bubbles and reckless lending, its goals are twofold. The first is to use the crisis to further integration and centralise power for Germany and France. The second is to avoid coming under the spotlight for the non-inconsequential role it played in the european debt crisis.
The first goal is largely underway. Negotiations with bailout countries focus on keeping them dependent on the ECB for funds and signing over control of budgets and tax policy to the EU. Once control has been signed over, Germany and France are largely in control and the EU will be a de-facto federal state ruled by Germany with France as the wife.
The second goal will be accomplished by keeping focus on the the national governments unlucky (or foolish) enough to accept the EU/IMF bailouts. ECB executive board member Lorenzo Bini Smaghi has been to the fore in directing discussions to the role of governments when the issue of the ECB's role in the crisis rears its head in national discourse.
Take for example Ireland. In January, election talk grew louder and default talk was in the air as some media outlets in Ireland placed some of the blame for the crisis on reckless lending by German and French banks to equally reckless borrowing by Irish banks. Cue an entrance from Bini Smaghi in the Irish Times to lecture Irish people that they had 'benefited' from the boom and had elected the governments that allowed lax regulation of the banks. He neglected to mention lax regulation by French and German central banks and omitted entirely lax regulation by the ECB of national central banks.
Today, as talk in Ireland again turns to default with the realization that the debt burden is simply too large, Bini Smaghi pops up in the Financial Times for a quick refresher course in how the ECB views the naughty Irish. "The principle of 'no taxation without representation' should work both ways. If taxpayers have the right to share in decision-making, they must also accept the consequences," he wrote. And he even managed to insert a quick nod in the direction of centralising control and doing away with the sovereign authority of governments elected by the people: "As long as the accountability of supervisors to taxpayers is primarily a national affair ... then there is a high risk that taxpayers will foot most of the bill. They should not complain when it actually happens."
Again, there was nay a peep of the role of the ECB in their fueling of the speculative bubbles nor of their failure to regulate lending within the eurozone. As long as the national discourse turns to the failure of the government, a job well done by Bini Smaghi.
The ECB is scared attention will turn to its role in the causing the crisis. And if people realise that ultimate responsibility rests with the ECB for regulation, it could well fall the way of national governments that chose to (incompetently) regulate the banks. How far will people allow the ECB to set the course of national discourse in an attempt to cover up their own involvement in the debt mess? Watch the national press in Ireland tomorrow.
