A European precedent: Socrates drank the conium
Things in Europe are very simple.
There is only one way the Euro survives intact in the short to medium term: there need to be transfers from the core to the periphery. Nothing more, nothing less.
Now, there's two ways to do this: the democratic, 'above the table' way involves fiscal transfers, and it is crystal clear by now that won't be happening.
This leaves only one politically feasible way of ensuring the Euro remains the Eurozone currency for at least a while longer. When Italian spreads start increasing to unsustainable levels again (which they will do very soon), the ECB will need to step in and start buying more Italian bonds. Otherwise, the Banca d'Italia will need to start setting up parallel lira accounts for banks, bringing the Euro (and probably the world's financial system) to a rapid, unceremonious end.
Now, Mario Draghi has been at the receiving end of a lot of criticism for refusing to clearly commit to directly financing periphery debt, essentially making the necessary transfers from the core to the periphery in an undemocratic, 'under-the-table' way. The hope here amongst people who understand what's going on (many European leaders are not in this category) is that core country electorates won't notice that what the ECB is doing is essentially equivalent to a good old straightforward fiscal transfer.
These criticisms are fair in that it is clear now there is only the one option left, and the ECB is definitely not talking the talk. But - and this is where I sympathize with the ECB position - direct financing of government debt is illegal, clearly and unequivocally. At times of emergency, an elected government may have enough justification to temporarily suspend the constitution or undertake illegal actions in the hope that events will offer enough justification for its actions when the dust settles. Mario Draghi and the ECB, on the other hand, have no democratic legitimacy, and no justification - even in an emergency - to stray from what is legally required or explicitly demanded of them by democratically elected politicians.
ECB intervention is the only way to rescue the Euro, and it would involve an illegal action by a small group of people with no democratic legitimacy. There is a European precedence to that: Socrates refused to disobey the - clearly flawed - laws of Athens, and paid with his life. It is unclear whether he would have done the same if the lives of all Athenians, rather than merely his own, were at stake. This is the question events will soon force on the ECB.
It's a regrettable state of affairs, but I cannot blame Draghi for refusing to operate outside the law.
ADDENDUM: Another aspect of the criticism that I find misplaced relates to the demand the ECB does something 'now' or 'before it is too late'. The way I see it, they can do this up until the very last second (just before Monti presses the 'print' button on the lira machine would do just fine), so why would they do it earlier when, at least theoretically, politicians may finally own up to their responsibilities?
Also, just to say that I find it pretty surreal to be (kind of) defending the ECB, when they have made myriad serious mistakes throughout the crisis, and many in their ranks are clearly clueless (Trichet was a first-rate buffoon). But criticism in the Krugmosphere is a bit too one-sided.
**
jaguarpaydayloans.co.uk
There is only one way the Euro survives intact in the short to medium term: there need to be transfers from the core to the periphery. Nothing more, nothing less.
Now, there's two ways to do this: the democratic, 'above the table' way involves fiscal transfers, and it is crystal clear by now that won't be happening.
This leaves only one politically feasible way of ensuring the Euro remains the Eurozone currency for at least a while longer. When Italian spreads start increasing to unsustainable levels again (which they will do very soon), the ECB will need to step in and start buying more Italian bonds. Otherwise, the Banca d'Italia will need to start setting up parallel lira accounts for banks, bringing the Euro (and probably the world's financial system) to a rapid, unceremonious end.
Now, Mario Draghi has been at the receiving end of a lot of criticism for refusing to clearly commit to directly financing periphery debt, essentially making the necessary transfers from the core to the periphery in an undemocratic, 'under-the-table' way. The hope here amongst people who understand what's going on (many European leaders are not in this category) is that core country electorates won't notice that what the ECB is doing is essentially equivalent to a good old straightforward fiscal transfer.
These criticisms are fair in that it is clear now there is only the one option left, and the ECB is definitely not talking the talk. But - and this is where I sympathize with the ECB position - direct financing of government debt is illegal, clearly and unequivocally. At times of emergency, an elected government may have enough justification to temporarily suspend the constitution or undertake illegal actions in the hope that events will offer enough justification for its actions when the dust settles. Mario Draghi and the ECB, on the other hand, have no democratic legitimacy, and no justification - even in an emergency - to stray from what is legally required or explicitly demanded of them by democratically elected politicians.
ECB intervention is the only way to rescue the Euro, and it would involve an illegal action by a small group of people with no democratic legitimacy. There is a European precedence to that: Socrates refused to disobey the - clearly flawed - laws of Athens, and paid with his life. It is unclear whether he would have done the same if the lives of all Athenians, rather than merely his own, were at stake. This is the question events will soon force on the ECB.
It's a regrettable state of affairs, but I cannot blame Draghi for refusing to operate outside the law.
ADDENDUM: Another aspect of the criticism that I find misplaced relates to the demand the ECB does something 'now' or 'before it is too late'. The way I see it, they can do this up until the very last second (just before Monti presses the 'print' button on the lira machine would do just fine), so why would they do it earlier when, at least theoretically, politicians may finally own up to their responsibilities?
Also, just to say that I find it pretty surreal to be (kind of) defending the ECB, when they have made myriad serious mistakes throughout the crisis, and many in their ranks are clearly clueless (Trichet was a first-rate buffoon). But criticism in the Krugmosphere is a bit too one-sided.
**
jaguarpaydayloans.co.uk
