The Implementation of Monetary Policy in the Euro Area

The ECB has updated its manual on the conduct of monetary policy. This is required reading for all visitors to this blog and is available here.

18 replies on “The Implementation of Monetary Policy in the Euro Area”

This is required reading for all visitors to this blog….

Excellent. Can you put random questions above the Comment button so that readers who haven’t done their homework are prevented from commenting?

@ Philip

Many thanks for the post and attached.

@ Kevin

Would it not be best to guide and teach the ‘not so specifically enlightened’ to any relevant part and develop understanding as opposed to excluding participation in a debate – possibly one of the reasons we are in the state we are in.

It certainly puts the level of debate on Twitter in context 🙂

The mot won’t be happy when I produce this document before lights out.

Its a tad longish. Def academic Haute Cuisine. Lots of technospeak, but the Glossary is useful.

It would be helpful to the financially un-enlightened (me being one) if PL and BL were to publish a ‘Idiot’s Guide’. Thought if they excused themselves on grounds of ‘other things to do’: I’ll understand.

I’ve saved a copy and will dip into bits of it from time to time. Thanks all same.


Requiring your readers to read all of that will be a good way to cut down on said readers. I think ill wait for the movie.

Some might benefit of having a look at the Objectives of the Eurosystem (page 10).

Primary objective is price stability.

Bubble-fighting (if it is at all the ECB responsibility) might possibly come under ‘favouring an efficient allocation of resources’. Bubbles are by definition not an efficient allocation of resources. As bubbles are local & the ECB has no local tools it seems unlikely that it would be expected to fight them.

The treaties:

The part about economic policy starts at page 99.

They do take the stability of the euros buying power (withen certain limited parameters )very seriously , but the bankers consider this independent of credit production and destruction.
Hence Labour cost moves up during credit creation and moves down during credit destruction.
In this scenario labours value is static at best whilst interest capital can reap any surplus during the boom years and be protected on the way down.

Labour is always the Gerbil on the wheel.
The ECBs balance sheet is a beautiful design for control of the masses , it neither ties the money supply to any fixed parameters such as under a standard system which would favour the industrialists nor engages in excessive high powered money printing which would favour the workers.


I believe that the more money that is printed the worse the it is for the workers. Ever tried to collect on a debt for work when the work has already been done? That is what money-printing & inflation does to the worker.

Not sure if this is appropriate (apologies if it is not), when reading the document I was at the same time listening to some Swedish punk music from the 70s80s: Ebba Grön, you might like the lyrics to ‘Staten och Kapitalet, only translation I could find is linked to below:

It seems to me that ECB has been doing many things right: it’s primary objective is clear and I believe that its primary objective is a good one. Whether or not it should ever buy government bonds (even if only in the secondary market) is however very debatable.

I disagree when their is little or no real capital and everything is swamped with debt it is a lie to maintain a artificial value to debt currency.
This has the advantage of keeping commodity prices low for westerners but is not sustainable in the long run.
The FED mechanism of printing dollar money rather then credit currency or a revaluation of the Euro balance sheet is now nessary – we cannot live a lie forever.


Your suggestion of printing money is the only way failed capitalists can hold on to their physical assets, as you’d inflate their debt away & which would enable them to keep their assets.

& as more and more money would be printed the only way a worker could get proper value for his/her work would be to spend the money as soon as it is received (& also borrow more) -> Encouraging consumerism.

So basically your policy would make the world worse for everybody except bad capitalists who you’d make sure would be protected from their own incompetence.

The value in the currency is illusion
There is little or no capital in the currency – what gives a commercial bank the right to print or receive debt interest if it is a bankrupt ?
A Central bank if acting in the interests of the exchequer would print and print and print – in the US under QE2 it is not adding to the debt – most of the interest goes back to the treasury , therefore it is making a attempt to recapitalise through inflation of the money supply – the banks do not get a yield off this trade directly.
Why do you think you have large scale unemployment in the west ?

It is due to the overvalue of debt currency which undervalues resourses – this enables a global wage and tax arbitrage model to continue even if it is grossly inefficient.
If oil was $200 – $300 dollars a barrel the globalisation process would reverse and take jobs home although the west in total would be poorer in its ability to consume.
I would have prefered a recapitalisation of the world through default of the shadow bank sector but the guys in charge are the shadow bank sector.

Its either default or inflate – the 1980 to 2007 period was a vast decapitalisation experiment – its over.


Again, failed capitalists who have taken on too much debt would be saved by inflating their debts away. Workers would be forced to spend as soon as they get the money (& the smart would borrow more) otherwise the value of the work they did would decrease in value.

Again, money-printing as you suggest would keep failed capitalists in their mansions & workers living from payday to payday without the possibility of improving their situation.

A humans work is nothing compared to the BTUs in Arabia and elsewhere.
The money that you speak of is not money per se – it is deposits built up from bank credit expansion.
This credit is a consequence of increased energy production – if energy production is static or falling , credit will remain static or fall.
In a monetory system such as this – this dynamic becomes unstable as the exponential nature of interest kicks in.
If they did not inflate under these parameters some strong hands would win and perhaps the majority would starve.
You cannot talk about capitalists in the west as the west has none – it depends almost completly on outside credit or energy tokens – this depends on capital destruction , not creation.
Pre 1971 – there was some domestic capital creation , but to keep the value of debt and therefore its interest yield they needed to decapitalise the system by not investing in energy infrastructure and consuming the surplus – they / we did this very effectively.
We now have very little capital relative to our debt which we wish to express as our wealth.
Unfortunetly debt is not wealth.

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