Dean Baker | The European Central Bank Is Strangling the Eurozone
Dean Baker in his Beat the Press blog on the ECB’s failure not only in the Greek Debt Crisis, but also it’s superstitious economic policy which will cause more problems for the Eurozone, principally countries like Spain, and Ireland.
It would have been helpful to point this fact out in an article reporting on the Greek and eurozone financial crisis. While Greece did have serious fiscal problems prior to the economic crisis, the other countries now facing difficulties were not similarly troubled. Spain, the most important of the troubled countries, actually was running surpluses prior to the crisis. The difficulties now facing these countries is largely the result of the economic downturn, which has seriously worsened their fiscal situation.
The European Central Bank (ECB) could make the money available to these countries to sustain their economies through this downturn. (They would print it.) The ECB has opted not to go this route because of peculiar superstititions about inflation. It would be worth pointing out to readers that this crisis is largely the result of superstitions by Europe’s central bankers, not fundamental economic problems.
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May 8, 2010 1:28 pm
Hi
The ECB’s policy of low inflation by keeping interest rates low made easy credit readily available. Germany, as David McWilliams has repeatedly indicated, in these circumstances injected unprecedented amounts of credit into the Irish Republic inflating the economy into, what bourgeois ideologues call, excess capacity leading to a property bubble.
It is too easy to simply place the blame on the shoulders of the banks and property developers. Such criticisms are a form of simple minded nationalism. The acute economic and financial problems currently besetting Ireland are a product of world capitalism and not of a handful of puny Irish banks and developers.
May 8, 2010 3:32 pm
Good point. What happened in Ireland was part of a European wide problem of course, exacerbated by the Irish oligarchs – you can’t pretend that such a system doesn’t exist. However, why did the ECB want low inflation? One of the points being made now is how in order for Germany to maintain a competitive export market it had to keep wages at the same levels for the last decade. As Martin Wolf pointed out demand in the Eurozone has been flat for years. Increasing inflation would cause upward pressure on German wage levels which would affect their competitiveness. The situation now is that countries like Greece are being asked to develop export led growth, but with poor demand in the places they’re supposed to be exporting too.
The issue now is the solution, and the solution that is being provided by the EU and by the Irish government is based on the same mindset that caused the problems in the first place. Capitalism in Ireland is the same as the capitalism elsewhere. You have to challenge it where you come up against it.
May 11, 2010 7:19 am
Below is a correction to a misprint in my last comment in relation to the piece above.
The ECB’s policy of low inflation by keeping interest rates low made easy credit readily available. Germany, as David McWilliams has repeatedly indicated, in these circumstances injected unprecedented amounts of credit into the Irish Republic inflating the economy into, what bourgeois ideologues call, external diseconomies of scale, involving to a property bubble.
It is too easy to simply place the blame on the shoulders of the banks and property developers. Such criticisms are a form of simple minded nationalism. The acute economic and financial problems currently besetting Ireland are a product of world capitalism and not of a handful of puny Irish banks and developers.
Paddy Hackett