Aufsätze Ökonomik

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Aufsätze Sozialethik


Prof. Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.

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ECB lapse

In financial parlance, the ECB’s 2009 decision to stand in support of non-saleable sovereign bonds issued by member countries. – Article 123 TFEU and Article 21 of the “Protocol on the Statute of the European System of Central Banks and of the European Central Bank” annexed to the TEC explicitly prohibit the ECB from financing member state budgets. However, this prohibition was circumvented by the fact that debt instruments of shaky EMU member states were not directly taken over by the ECB. Instead, the ECB bought the securities on the secondary market. However, by buying up public debt instruments of member states that had been blithely violating the Stability and Growth Pact for years, such as Greece, Ireland, Portugal, Cyprus, Italy and Spain, the central bank indirectly helped to finance the government deficits of these countries. On top of that, this measure shifted the default risk of the owners of the government bonds from these countries – mainly banks, insurance companies and funds – to the taxpayer. At the end of 2010, the ECB already had more than EUR 67 billion in government bonds from Greece, Ireland and Portugal in its portfolio. In 2011, the ECB again bought Spanish and Italian paper under pressure from the southern front. – Incidentally, the ECB’s measure had hardly any effect on the price development of these government bonds, because the ECB cannot strengthen the lack of investor confidence in the economic performance of these countries in this way. – The ECB itself justified its measure on the grounds that the transmission mechanism of monetary policy had been disrupted: “dysfunction” (failing to serve an adjustable purpose) had occurred in some areas of the financial market. This explanation was widely regarded as a pretext, especially since it became known that there had apparently been extraordinarily heated disputes within the ECB about the purchase of the junk securities. After all, the ECB’s primary goal is to ensure stable prices in the currency area, not to save stumbling states from economic ruin. To this end, it became apparent that the interventions had little effect: interest rates for the crisis states fell for only a few days, only to rise again rapidly. This is because market participants do not see such measures as curing the causes of the lack of confidence in these government securities. Instead, the purchases changed the risk profile of the ECB: EMU member states could be forced to answer for the ECB’s debts from the bond purchases. – Another unfavorable factor was the chronological coincidence of these purchases with a capital increase at the ECB effective December 29, 2010, which had admittedly been planned for some time. Many saw this as the ECB’s intention to build up a cushion for any losses from the government bonds purchased. These losses were estimated at EUR 4 billion for the Deutsche Bundesbank, which would be passed on to it from the ECB’s balance sheet and thus reduce the Deutsche Bundesbank’s transfers to the federal budget by this amount. Of course, the ECB had announced that it would keep the securities in its portfolio until maturity; a loss would therefore only occur if one of the countries were to slide into national bankruptcy. But this cannot be ruled out at all. – This cost the ECB a loss of confidence, not only in the financial world but also among the general public. It was accused of serving as a corrective (something that counteracts, compensates, adjusts something, especially a disability) for the misguided budgetary policies of some of its members and of making itself available for this purpose. The premature resignation of Axel Weber, President of the Bundesbank, and Jürgen Stark, Chief Economist of the ECB, were directly linked to this ECB decision. Weber and Stark also publicly opposed the purchases of government bonds and insisted on a precise separation between monetary policy and budgetary policy. – In the process, however, the “medial processing” often ignored the magnitude of the ECB’s sin. While other central banks financed ten percent or more of GDP in this way, the ECB financed only slightly more than one percent; in the fall of 2011, the ECB had one hundred billion government bonds in its portfolio. Of course, the ECB thus assumed the default risk associated with these bonds; even experts sympathetic to the ECB estimated this risk at over 80 percent. This is tantamount to the ECB transferring purchasing power from all EMU participants to individual EMU members – and the ECB has no authority whatsoever under the EU Treaty to pursue such a distribution policy. – It should also be noted that when new issues are purchased, the money flows directly into the respective government treasury. In contrast, purchases on the secondary market mean that the government has already found a buyer for its debt instruments in the past. Thus, money does not flow from the central bank into a government budget, but to other market participants. These could use the money for other purposes, such as investment, that is, to improve or expand productive capital. This leads CETERIS PARIBUS to a strengthening of competitiveness, provided that the capital is invested sensibly in one’s own country. This, in turn, is probably rightly countered by the fact that the term “secondary market” is not assigned any temporal definition. A bank, for example, can acquire government bonds as a primary buyer (first buyer) and sell them on to the central bank within one second in an extreme case. – On the other hand, the criticism of the ECB’s fall from grace was in many cases not so much directed at the effect of the measures. Rather, many saw it as a disastrous error in regulatory policy, because the central bank was taking over the tasks of the government and fiscal policy. After all, interest rates have a disciplining effect on the capital market. When the ECB intervenes in the markets, it reduces the pressure on the governments concerned to make the necessary adjustments to strengthen competitiveness – and this is rightly seen as a basic regulatory mistake. – Undeniably, however, more and more government bonds are piling up on the ECB’s balance sheet whose value is doubtful and which probably cannot be paid even at maturity. The ECB has thus moved into the vicinity of a bad bank. – In the wake of the financial crisis that followed the subprime crisis, the ECB’s monetary policy ultimately became largely just anti-crisis policy. It felt compelled to compensate for the failures of fiscal policy. – It should not be concealed, however, that the central bank purchases were also received with great favor, especially by the politicians of the crisis states, because in this way the excessive holdings of government bonds in bank balance sheets were reduced. It was also implied that the ECB’s purchases were intended to relieve banks in the stress test to be conducted by the European banking supervisory authority in 2014. In other words, the ECB would not only detect the misdevelopment at a bank, but would also eliminate it in one: a main reason for the consistently distrustful attitude among the German public to place European banking supervision with the ECB. – See presumption, central banking, fear, perverse, buyouts, central banking, bail-out, bazooka, covered bonds, credit default swap linkages, deficit financing ban, Elizabeth question, blackmail potential, euro bonds, European Monetary Union, fundamental error, European Central Bad Bank, ECB independence, leadership, verbal, willingness to act, hegemon, mild, Japanization, Kaldor Hicks criterion, credit, titrated, lie-and-deceive thesis, monetarists, Moral hazard, low interest rate, nuclear option, zero interest rate, perpetual motion machine, Plan C, renationalization, monetary, bailout, junk securities, debt club, seven percent limit, sovereign debt repatriation, Stability and Growth Pact, fundamental error, southern front, transfer union, troika, redistribution, central-bank-influenced, asset levy, treaty fidelity, confidence bubble, monetary union 2, central-bank reputation, central-bank credit, public, path inflation, forced expropriation. – Cf. ECB Monthly Bulletin, June 2010. pp. 24 et seq. and p. 33 et seq. (dramatic situation in financial markets allegedly made rapid intervention by the ECB through purchases of government bonds absolutely necessary), ECB Annual Report 2010, p. 21 (justification for bond purchases), p. 111 (size of covered bond purchases), ECB Monthly Report of July 2011, pp. 59 ff. (detailed justification of measures; many overviews; comparisons with Japan and Scandinavia), Deutsche Bundesbank Monthly Report of November 2011, p. 43 (markups on Pigs’ government bonds since 2009), Deutsche Bundesbank Monthly Report of May 2012, p. 32 (purchases of government bonds by the ECB and commercial banks since 2008; overview), Financial Stability Report 2013, pp. 20 ff. (crisis of confidence in the EMU and its causes), ECB Monthly Report of September 2013, pp. 45 ff. (ECB balance sheet expansion since 2007; overviews).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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