in a reply to a tweet of @Tiefseher posted on March 12th 2012 1400 CET which said (in German) :"The ECB now acts (loosely) according to Helmut Schmidt: preferably 5% inflation instead of 15% unemployment"
- "Mir scheint, daß das Deutsche Volk – zugespitzt – 5% Preisanstieg eher vertragen kann, als 5% Arbeitslosigkeit." - Süddeutsche Zeitung, 28. Juli 1972, S. 8
- auch zitiert als: "Lieber fünf Prozent Inflation als fünf Prozent Arbeitslosigkeit." - zugeschrieben von www.spiegel.de (Stand 04/07)<<
So Helmut Schmidt did not speak of 15% unemployment (which is of course much more than just 5%) but also presumes that the German people are more capable of bearing 5% inflation than 5% unemployment. (quote from just before oil crisis of 1973)
What the ECB did in fact with its LTRO actions was preventing a collapse of European states and the Euro currency itself, when prior action of all major central banks of the world did its part to prevent world wide financial disaster by the dollar swap easing. The first LTRO was conducted only a few days later , right before Christmas in order to prevent a complete dry up of funding of southern European states where interest rates of such sovereign bonds were just going through the roof (of 7%) and some auctions didn't attract any buyers ! One mustn't forget the anxiety which was present in those days not too long ago, when some economists started publicly to recommend buying farm land in order to be able to survive on home grown vegetables ! (No joke, happened in NL)
We are all aware of the fact that basically the ECB action wasn't appropriate according to solid European standards of central banking but it is as if someone demands a rereading of fire prevention rules and insists tenants must install smoke detectors while the apartment building in question is indulged in flames and the fire fighters are about to engage in order to fight the blaze caused by one tenant who obviously didn't follow the rules. So it would be a wise thing to put out the fire without discussion of how the hoses have to be connected properly together and afterwards, while the smoldering ruins are cooling down, there would be time for implementing measures of fire prevention in order not to let disaster strike twice !
Coming back to the ECB and the Bundesbank it is worth mentioning that traditional ally of the Bundesbank -the DNB - of The Netherlands and its current president Mr Klaas Knot had soften its position. Shifting away to a certain degree from 'orthodoxy' of the Bundesbank. It is communicated by Mr Knot on Dutch public TV in a remarkable first live TV interview (mainly because of the to be expected reduction of pensions) but also expressed here in this statement by Mr Knot. So it is pointed out by DNB as well as by Dutch finmin De Jager that in principle The Netherlands shared 'German values' of sound public finances and restrictive monetary policy but is more flexible when it comes to saving a system which might otherwise break down. (One might call it 'Dutch pragmatism')
The problem of the ECB to react to crisis by recent LTRO actions was created long before in the very beginning of the eurozone by letting countries join the union which never complied to the strict rules of Maastricht. So in the case of Greece the books were cooked but anyone with knowledge of prior Greek economic data could see the 'magic'. And all politicians of the eurozone ignored the fact that some members were simply not capable of sustaining their debt levels because of insufficient economic performance. All problems were dramatically exposed by the fallout of the US subprime crisis after reaching its peak by the collapse of Lehman Bros. and almost collapse of AIG finally hitting Europe. We know perfectly well what caused the crisis and what consequences were looming for not only the eurozone but for the financial system of the globe. It's fair to assume that after the crash of eurozone, the rest of EU would have sucked into the abyss too and when misery would have hit the UK it would have then reached North America and Asia.
As a former believer in the high quality of monetary policy by German Bundesbank and Dutch DNB alike and as a fan of their greatest presidents like Wim Duisenberg, Helmut Schlesinger, Karl-Otto Pöhl etc the anger of @Tiefseher can be fully understood but as a person fully committed to the well being of our businesses and citizens alike it doesn't make sense just to look back to see the mistakes and misery of the past. Instead we should look forward and try to make things finally work. Even when they had some design flaws since the days they were created. It's not wise to speculate on the chaotic breakdown of the eurozone since a revised 'rerun' of history seems to be almost impossible. Perhaps some roads to a sustainable 'Neuro' and 'Seuro' (northern and southern eurozone) can be discovered without a too negative impact on our economies. We should focus on that and should not want to scuttle the hole thing. In German language the restrained frustration is expressed by: "Eine Faust in der Tasche machen"
[update Mar 12, 2012]
So it's worth to balance the possible thread of inflation and those negative long term effects on the currency holders against the immediate "full inflation" effect of wiping out the currency immediately and let Europe and the world tumble in financial chaos
Some related links:
E.U. Bank Crisis Only Narrowly Averted Catastrophe
Q&A: dollar swaps – why central banks are acting together on eurozone crisis
Klaas Knot: The future of EMU and the Netherlands' place in Europe (pdf)