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Tuesday, April 15, 2014

Can the real Super Mario please stand up?

Former Italian Prime Minister Mario Monti may be out of Italian politics, but it's fair to say he still likes to talk - especially when travelling abroad.

In an interview with Belgian daily De Morgen and Dutch daily De Volkskrant, Monti seems to hint at what many Bundesbank-fearing Germans already suspected: that the ECB's pledge to do "whatever it takes" (i.e. the OMT, the new bond-buying scheme) was de facto grounded in a political decision - contrary to what the ECB's mandate dictates.

Here is what Monti said in the interview:
[At the June 2012 European Council], I have used my full negotiating position in order to get a line approved that looks boring at first glance. At 4 am, the signatures of all leaders had been provided, including the ones of [German Chancellor Angela] Merkel, of my good friend the Dutch Prime Minister Mark Rutte, and of Finnish Prime Minister Jyrki Katainen, you can say the monetary firepower from the North [...] The line established, in short, that eurozone countries who did their homework, like Italy, were guaranteed ECB support. That statement – at the highest political level – didn’t impress the markets, because the leaders did have the authority, but no money. One month later, ECB President Mario Draghi came out with his famous statement: the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. That did calm the markets, because Draghi did have the money. 
Monti is clearly trying to claim some credit - and the headline of the interview in De Volkskrant is actually "Mario Monti: the man who saved Europe". However, if Monti is right, it clearly means that the ECB's political independence was seriously compromised, since, strictly speaking, there should be no link whatsoever between a political agreement and ECB action..

Draghi's statement is one of the main reasons behind the fall in borrowing costs for countries in the eurozone periphery - some of which have yet to deliver on real economic reform. Monti may have given Draghi some of the credit - but he has also given fuel to those Germans who fear the ECB's independence is a thing of the past.

3 comments:

jon livesey said...

Since Draghi's famous statement was in fact a threat to monetize debt, it's no wonder that it calmed the markets.

When you buy debt, you buy currency for future delivery, and Draghi simply guaranteed the future delivery.

The economic failure that is still with us isn't really connected to that one way or another. The "theory", if that's the right word, behind austerity, is that cutting real wages and slashing domestic demand will eventually push your economy into export-led growth. Which actually works in some cases, but not if you are sharing a currency with Germany.

christina speight said...

The dance of the devils goes on - and on and (er) on. One eurocrat after another lies in their teeth, to keep the EU's Titanic afloat. The Euro cannot work without a federal state to back it and since that is not in prospect the inevitable final outcome is that the EU will decline further into global irrelevance and increasing poverty.

OK, so most of today's eurocrats may die first and don't care but the future oif Europe is grim indeed. (All those long-term Youth unemployed will finally decide that this is no way to spend a lifetime and will revolt - messily. Pity there are no public Guillotines and tumbrills for Monti, Baroso, and all the others who have got rich on the backs of the deluded EU-citizens.

Rik said...

Looks to me an ideal topic for parties like AfD/Linke, Wilders, SP, the Christian Taliban and the Finns to makje some noise about pre-election.

"Pity there are no public Guillotines and tumbrills..". Never give up hope Christina. I am just doing the course: 'how to knit' (for extreme dummies), you are not going to tell me I do all that for nothing.