|
|
"The objective of this programme?
It is to repair monetary policy transmission and to recreate the singleness
of monetary policy for the euro area."
- Mario Draghi, president of the European
Central Bank, Thurs 6 Sept 2012
FOR the second time or more since May, today's Handelsblatt newspaper in Germany
carries a big picture of Edvard Munch's The Scream.
This time, the picture doesn't replace the painter's tortured self-portrait
with chancellor Angela
Merkel's head. The
headline now reads "Angst of
the Germans".
But the subject is the same.
"Nothing frightens the German people so much as the Euro debt
crisis," says the newspaper. The most over-insured people in the world,
Germany naturally shares its fears in a survey conducted for an insurance
company's PR department – and at 73%, fear of the Eurozone crisis now
tops even its reading 12 months ago, when the crisis tipped into what's
proven its worst plunge to date.
Indeed, "This fears beats even the fear of inflation at 63%," says
the R&V survey. Which is some going in Germany!
"This concern is [also] likely to have increased after yesterday's Governing
Council meeting of the European Central Bank."
Yes, this week's vote by the Eurozone central bank will be causing sleepless
nights from the Rhine to the Elbe. No other modern nation bothers to care
anything like so much about central banking. (Both the US Fed and Bank of
England would have been fire-bombed if so.) But in Germany, it's ein volk, ein
opinion of monetary policy. And a very sturm und drang opinion it is, too.
"The majority of Germans don't trust 'Italian' Draghi,"
according to a Stern survey.
Every other survey in the German press today says everyone wants next week's Constitutional
Court to rule Eurozone
bail-outs illegal, but everyone also accepts that it won't. "Financial
markets celebrating the death of Bundesbank,"
says Die
Welt,
explaining how "Draghi breaks with strict
principles of German monetary policy – a nightmare begins for
Germans." Tabloid paper Bild adds "Blank cheque for debt governments. Is Draghi
destroying the Euro...?"
You can guess Germany's answer – a unanimous view that has already been
taken right to the heart of the ECB, itself sitting in Frankfurt, much like
West Berlin sat inside East Germany during the Cold War. First the German Bundesbank president Jens Weidmann
broke with his 16 central-bank colleagues and voted "Nein" to the
bond-buying plan. Then only two hours later, the voice of the people was
raised again.
"I am a German," declared a journalist asking questions at Thursday's
ECB press conference,
broadcast live to the world on the web. "I really think your approach is
great," he told ECB chief Mario Draghi,
"but you know the markets.
"In four weeks
we will be sitting here again at another press conference. I hope that this
conditionality will stay and you will not give ground regarding this issue of
conditionality."
Conditionality! Has
such a dry, bureaucratic term ever been quite so charged? The quality of
being conditional, or limited (according to Webster's 1828 edition), the word was used 10
times by Mario Draghi in Thursday's press
conference. The passionate German journalist above said Draghi
made it "every second word" in his announcement. The journalist
himself then used it 5 times in one question!
We'll come back to conditionality in a moment. Because two other points stand
out from Thursday's news:
#1. German Bunds are gonna
get Mario'd, just like the debt of Italy, Spain and the rest. Only in
the other direction. The "policy transmission mechanism" by which
the central bank controls interest rates is broken,
said Draghi (or rather, "impaired"). And
"if bond markets are distorted in the Euro area, they are distorted in
all directions," he added, replying to a question about German debt's
current sub-zero interest rates. So to restore unity in the currency union
– the stated aim of this week's news – German Bund yields must
rise as Italian, Spanish and the other bond yields fall.
#2. Sterilization makes it plain. Because to salve everyone's fear of money-printing,
wheelbarrows, and sweaty speed-freaks with Chaplin moustaches, the ECB is not
going to inject extra cash into the economy. Not like the US Fed, Bank of
England and Bank of Japan claim to have done. Oh no. Instead, the purchases
of weak Eurozone debt will be "fully sterilized", with precisely
the same amount of cash that's spent by the ECB being taken back in by selling
other, non-weak Eurozone debt.
Guess whose? The
aim, Draghi repeated, is to "recreate
singleness". Selling Bunds is the ying to
buying Spain's yang. Sterilization demands it. So too, perhaps without
knowing it, does Germany.
"The intervention purchases must not be permitted to jeopardise
the capability of monetary policy to safeguard price stability in the Euro
area," said Bundesbank president Jens Weidmann in a
statement
Thursday afternoon. Issued to confirm that he was the 1 dissenting voice on the Council (widely guessed, but secret
information according to Draghi), it's been
reported worldwide. Yet it doesn't – oddly – appear on the Bundesbank's own press release pages.
Nevermind. At the ECB meeting, says Weidmann's statement, he "reiterated his frequently
substantiated critical stance towards the purchase of government bonds by the
Eurosystem. He regards such purchases as being tantamount
to financing governments by printing banknotes.
"Monetary
policy risks being subjugated to fiscal policy."
There, now he's
said it. How Ben Bernanke and Mervyn King must have
winced! But if, in Weidmann's noble world,
independent central bankers must rise above politics, then doesn't that put
them in charge? Well, yes, says Weidmann. Mario Draghi agrees.
"If the adopted bond-purchasing programme
leads to member states postponing the necessary reforms, this will further
undermine confidence in the political leaders' crisis-resolution
capability," Weidmann's statement goes on. Which brings him, and us, back to conditionality. Meaning
conditions set by the pan-European government in Brussels. Which the ECB says
must be agreed if it's to buy a member-state's debt, and which must then be
met if it's to keep buying or not sell.
The unelected team led by Super Mario (as the Italian press first called him
in a bout of journalistic laziness during the early '90s) thus becomes
supra-Mario. All-seeing, all-knowing and all-powerful, he now wields –
in the name of "unity" – cross-border oversight of national
budgets, plus the ultimate sanction of selling your bonds and so raising your
debt costs if you don't behave.
Amongst private-sector investors, that power used to belong to the fabled
"bond
vigilantes"
– professional money and wealth managers apparently motivated to
protest against big-spending governments by selling that country's bonds.
That raises the country's debt costs, curbing its deficit and capping its
debt. Yes, the vigilantes have clearly gone AWOL in the US, UK, Japanese and
even German debt markets. But it's just the role private-sector investors have
taken in punishing
Greece, Ireland, Portugal and the rest.
Vigilantism is rough justice, however. The human catastrophe in Greece and
Spain proves that. Which is why the calm, cool heads of the
ECB are stepping in. Weidmann asks if
supra-Mario will punch and kick the weaker Eurozone states should they fail
to fix their debts and deficits. But judging by the gold price
in Euros
– now a tick or two below all-time record highs – plenty of
private capital says no, he won't. And judging by Germany's reaction, the
Eurozone's single-biggest economy and creditor believes unsterilized aid for
weaker states will show up in due course, too.
|
|
