The Problem, Outlined: ECB & the Property Bubble

  • Real-World Economics Review blogWill the popular movements teach the European Central Bank economics?: …like the Communist Party in the Soviet Union, acceptance of the ideology is the price for admission into the clique of economists who can influence the ECB.The central tenet of ECB dogma is that the central bank should target a low inflation rate (2.0 percent) and pretty much ignore everything else in the economy. In the last decade this meant ignoring the massive housing bubbles that were driving the economies of Ireland and Spain. The bank was happy all through the period in which the bubbles were growing to ever more dangerous levels because it was hitting its inflation targets.
  • William K. Black / New Economic Perspectives – The European Central Bank Rises above the Law and its Principles: The problem, as a number of economists pointed out when the euro was being created, was that these ECB policies, together with the severe constraints (even in a recession) of the EU’s “growth and stability” pact, would inherently lead to a crisis when the EU faced a severe recession. Economic critics of the euro pointed out that the nasty scenario would be a recession that was far more severe in the periphery because ECB policies would be set by the German-French core with minimal policy input from the periphery. The core would demand austerity, which would lock the periphery, unable to devalue given their adoption of the euro and unable to adopt effective counter-cyclical fiscal policies due to the EU’s oxymoronic “growth and stability” pact, in a severe recession and expose the periphery to attacks on its debt. Nations that adopt the euro give up their fiscal and monetary sovereignty. The theory of the euro and the ECB was to let the people of the periphery twist slowly in the wind in the event of a serious recession… The ECB remains indifferent, however, to the periphery’s unemployment. Indeed, the ECB’s demand for what our CIA refers to as “draconian” austerity programs (in Ireland), is the principal cause of increasing unemployment in much of the periphery.
  • Michael HudsonReal Estate 4 Ransom trailer: Michael features in this upcoming Australian documentary on how economic theory was kidnapped and the policy manipulations that allowed this to happen. How was property speculation allowed to crash the global economy?
  • / EuroMaverick blog – Prevention is better than cure…sadly Europe anno 2011 is unable to do either: This is a unique crisis and European countries have zero experience with such a crisis. Moreover, they can not borrow a manual on how to solve a currency crisis is a monetary union that is not a fiscal union from the rest of the world, as it too has no experience with such a crisis… The main obstacle preventing Europe from dealing with the euro-problem swiftly and forcefully is the fact that Europe is not able to act pre-emptively. Every increase in the firing power of the bail-out weapon has come after the euro crisis had gotten worse, never before that was the case. This is turn is caused by the fact that Europe has no fiscal or political union… the constant infighting between– European institutions among themselves and
    – together against the member states and
    – between the member states and
    – within the institutions (think ECB) and
    – within the member states themselves,

     is why Europe cannot act before the euro crisis takes a turn for the worse and thus get in the drivers seat.

This entry was posted in Budget, ECB/IMF, Economy, EU, Euro / Sovereign Money, Geopolitics, History, Housing Bubble, Independence/Nationalism, ireland and tagged , , . Bookmark the permalink.

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