Handelsblatt: "ECB is the arsonist in the crisis"

Dear reader,

some articles just spark an immediate reaction, although some others are still 'in the pipeline' of also to be published soon. This one published by Germany's well respected business newspaper Handelsblatt is such an article. Even more so because just a few days back the author here came the conclusion that the ECB is just the firefighter while other arsonists are setting the eurozone alight for a long time.

In this older blog post it was described how the ECB acted as the last institution standing between European citizens & businesses and also governments and the abyss. Since some people seem to have forgotten the immediate dangers the eurozone was facing end of November, beginning of December last year here is a reminder in the factual section of this blog.

It is somehow 'remarkable' how people seem to forget not only the dramatic events in Fall/Winter 2011, but also the many many steps which were leading to this final outcome of 'market refusal' to buy any sovereign debt from whatever European state and the massive capital outflows from the eurozone towards other safe havens around the globe. Forgotten the introduction of the common currency and the rather sudden (and not anticipated before) decision to let Greece enter the 'stability club'.


The ECB under the new 'commander Draghi' acted bravely to buy some time, which is obviously not used sufficiently by heads of governments and their finance ministers and their 'forgotten econ ministers' to overcome the fundamental flaws which are forming the basis of the current crisis. The Germans in charge somehow 'overlooked' the causes for the Spanish disaster, and somehow seem to cherish a wild goose chase of Spain is Greece which is Portugal which is facing same problems as Ireland. Common diagnosis: 'All sinners' ..hence fiscal exorcism must heal all of them. Instead of recognising the root causes for each individual country and tackle them with appropriate measures some 'kicking the can down the road' was done primarily by those often hastily organized summits and their meager results, presented as 'the solution'. Well done enough just to satisfy local constituencies, but nor to convince those involved in financial markets. So the main question of 'viable business model' for all individual member states remains open as well as a 'game plan' besides common shrinking and self punishment by austerity by all at once, proposed by those who were spending themselves as if there was no tomorrow but who were able to cover it all up by drastic looting of their own tax payers. (Yes i was referring to Mrs Merkel, who did 'milk' the German consumers by a never before applied VAT increase from 16% to 19% in 2007. Even now with tax revenue levels never seen before and peaking employment still practicing deficit spending).

The LTRO action wasn't endorsed by this author here without some remarks of how to steer the overspill of massive liquidity by other means. Unconventional measures also require 'learning by doing', and so the criticism of German Green party politician G. Schick who was speaking out in Handelsblatt is somehow justified, but with the implication that those politicians stop their usual 'blame game' and start to present solutions. He (Schick) also demanded more transparency of the latest LTRO actions by publishing a complete list of banks which took part in the 'backdoor state finance operation'. The author here also demanded more transparency, but not by publishing the name of the banks (in order to use them for the usual 'blame game'< 'craftsmenship of politics'), but by legally forcing those banks involved to give detailed statistics to ECB and state  government (tax offices) of how the LTRO money was used and what percentage was used for the goal intended by ECB and individual states alike and which parts were used for 'other targets' (equities, commodities, lending to businesses, individuals, etc)

One shouldn't forget either that the whole LTRO action was undertaken to bail out not only the banks, which were in danger of 'drying up', but to at least the same extend of states, which failed to sell their bonds of whatever maturing date to investors. States who were and who are still are depending on private capital, and where their politicians still have massive problems with 'simple economics'. (balancing revenues and spending). So by failing economic policies and failing fiscal policies the ECB was forced into its latest 'Saviour'-position. A view that is also reflected in this article by Handelsblatt, on page 3 where Hans-Peter Grüner, a former advisor of the ECB says (in German): "but the ECB faced since 2010 repeatedly the choice to counter political mistakes by unorthodox measures, or to watch how a deep banking crisis and a recession was hitting Europe"  

After some positive remarks about what Mr Grüner had to say, he unfortunately continues: "... the key for solution of the problem is most of all in the hands of European governments", Grüner reiterated "only when they create reasonable rules for limitations of deficits and enforce them , they rescue the ECB out of its current position".

Somehow the author here sees the need of the creation of a new perhaps medical expression of describing the lack of vision regarding balance sheets. As there is an expression for those who can't distinguish between red and green
there might be the need for those who can only see the debt in a 'dept to GDP ratio'. Reducing the spending only without strengthening the economy, without making it more efficient, expand its business operations to other regions, reducing bureaucracy and other obstructions, offer better & broader education in order to create more revenues for business owners (not only stakeholders), employees and for the state twice: By increasing tax revenues and reduced spending on social costs like e.g. unemployment benefits.

Has GDP, growth, flourishing business become the new pariah of our modern times ? Just asking ;-)