Another Trichet letter

To the Spanish Prime Minister in August 2011 (reply also published):

  • Publication: Letter from Jean-Claude Trichet, President of the ECB, and Mr. Fernandez-Ordonez to Mr. Zapatero, Prime Minister of Spain, on 5 August 2011


  • 19/12/2014 Publication: Reply from Mr. Zapatero, Prime Minister of Spain to Jean-Claude Trichet, President of the ECB, on 6 August 2011
     

 

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25 thoughts on “Another Trichet letter”

  1. This Reuters exclusive on the current thinking (i.e. compromise position) with regard to QE is relevant.

    http://uk.reuters.com/article/2014/12/19/uk-ecb-policy-idUKKBN0JX0VL20141219

    The bottom line remains unchanged i.e. the ECB is responsible for maintaining the integrity of the euro the use of which, in turn, is governed by the European System of Central Banks and, to the extent that the latter remain responsible to their national governments, the policy decisions of said governments become a legitimate area of correspondence and negotiation to the extent that that integrity is threatened.

    The bill for any failure stays with the member government.

  2. I am a bit shocked about Trichet’s argumentation in point 1 on the functioning of the labour market – its like we are back in the late 19th/early 20th century..

  3. . . . and in no way should the ECB be construed to be a political entity taking and imposing political positions on nation states, regardless of the political will of those nation states. It’s nothing like that: just pure economic good sense.

  4. In summary, cram down on all the little people, so that the euro can be saved to the benefit of the well remunerated elites.
    …the labour market..the labour market..the labour market….promote the private rental market!!!,… more competition for all the grunts…and remember well your “sovereign signature”, despite that this letter is a direct negation of your sovereignty.
    ‘Even the olives are weeping’

  5. One point that cannot be argued with any degree of success is the widespread belief that the ECB was somehow picking out Ireland for special treatment. Spain was not even in a formal bailout programme. One assumes also that both parties to the correspondence were agreeable to its release and that both saw no damage and, indeed, may have seen advantage, in taking the step.

    A recent groundbreaking decision by the German constitutional court in the matter of the taxation of the succession of SME’s, the famous Mittelstand, would suggest that there will be no mood in German business and government circles for taking on additional risk on behalf of countries with politicians incapable of taking decisions which are in the interest of their own countries.

    http://www.lemonde.fr/economie/article/2014/12/18/le-jugement-qui-menace-le-tissu-economique-allemand_4543414_3234.html

  6. Trichet was known for his use of the term “strong vigilance”, code for the fight against inflation. A bit like the Maginot Line. The real risk is deflation and Trichet didn’t think much about it cos the EZ doesn’t have a proper central bank or clear rules on how to divide the losses when crisis calls. Trichet didn’t look enough into the growth of private sector debt.

  7. @Tullmcadoo.
    “And the alternative is?”

    The alternative to cramming down on the little people, is of course to cram down on the big people, i.e investors who had their losses covered. A few things are needed.
    An increase in demand and an increase in state (EZ wide) revenues.
    A .25% pa levy on all EZ bonds in existence or future issues combined with a robust FTT, and a minimum Corp tax of 20% EZ wide would go a long way to sorting out the revenue problem. There would be no negative demand repercussions, as the investor money is merely sloshing around from one temporary home to the next, at present.

    The funds could be used to start a widespread investment programme that would give employment, housing and some sense of security and hope to the millions who are being crammed down.

    Don’t you think the EC/ECB/Axis powers have had long enough at this point mandating a failed ideology on the whole of Europe on the grounds that there is no alternative. There are alternatives; there always is; it is just that the EZ countries are not being allowed to try them.

    Personally, I think the root of the inertia is the failure in Germany to confront and assimilate the economic and social history of the 1930s in its schools, so that rather than seeing just the poltergeist of inflation etc, a more rounded study of the economic and social and political events that caused and gave succour to the mayhem of the 1930s and 1940s is needed.

  8. JR,
    Ahh I get you. Your own version of a Joe Higgins economic policy.

    You ain’t wrong on Germany though. They seem bent on destroying the continent again.

  9. As the saga of the ECB’s refusal to attend the Oireachtas inquiry is set to run and run, two links that may be of general interest.

    http://www.centralbank.ie/about-us/documents/ecb_facts_presentation.pdf

    http://www.oireachtas.ie/parliament/oireachtasbusiness/committees_list/committeeofinquiryintothebankingcrisis/

    The ECB document is a bit dated but not, evidently, to the extent that it is in any major way inaccurate. The contrast, not to say the contradiction, between the provisions on the independence of the ECB and its accountability is striking.

  10. The EU is an Organised Hypocrisy like all nation states.

    There are aspirations and the reality – Germany was the main banker of the project until reunification costs became excessive. Anchoring the Bonn republic in a peaceful postwar Europe was an important policy goal.

    Solidarity to many members came in cash grants and market access while Brussels seldom is credited for good news but it is always blamed for bad news.

    Rules for members of the new currency were mild with a naive focus on “peer pressure” and no serious surveillance of members’ economic policies.

    The euro had been a political project pushed by France and both Italy and Spain (3rd and 4th biggest economies) in advance of the launch were not in good economic shape – Spain had a jobless rate of 21% in 1997.

    Spain in 2006 had about 800,000 housing starts – more than Germany, France, Britain and Italy combined – while the US with more than 7 times the population had 1.8m.

    Germany alone could not have bailed out Italy and Spain and whatever about the 1930s, even in the US, a state like California had to sort out its own budget problems in recent times, imposing austerity in for example San Jose, the main urban centre in Silicon Valley (California did pay 18% more in federal taxes than federal spending in 1990-2009).

    From experience it is better to let countries solve their own problems or wait for the day when it has to be done.

    The flaw in the EU solidarity system is well illustrated by Jean-Claude Juncker as Dr Jekyll or Mr Europe in Brussels and Mr Hyde in Luxembourg, where one civil servant could make beggar-my-neighbour decisions on multinational taxes with rates lower than 1% on diverted profits from other countries.

    The Netherlands and Ireland operated similar systems.

  11. @JR

    I think both Germany and Israel are still suffering from WW2. The Germans are locked into a fear of inflation and the Israelis are wedded to violence. Meanwhile le canard enchaine reports that 76% of French people admire Merkel. Jesus wept.

  12. Another nugget from le canard. Draghi made 400bn available to the banks at 0.15% to loan to business 3 months ago. Only 212bn was taken up. Too risky to lend, too risky to borrow.

  13. DOCM
    Ain’t that the truth. Own interests will dominate. There will be QE in 2015 on a massive scale or there will be a new political dispensation which involves either Germany leaving or the peripherals leaving,
    The resurgence of the racist right in many hydra headed forms dictates that the rest of the EU throw Germany out.

  14. Mario’s Twelve Days of Christmas.

    On the first day of Christmas my true love sent to me
    A printing press and lots of QE.

    On the second day of Christmas my true love sent to me
    Two percent inflation
    And a printing press and lots of QE.

    On the third day of Christmas my true love sent to me
    Three Abe’s arrows
    Two percent inflation
    And a printing press and lots of QE.

    On the fourth day of Christmas my true love sent to me
    Four quarters growth
    Three Abe’s arrows
    Two percent inflation
    And a printing press and lots of QE.

    On the fifth day of Christmas my true love sent to me
    Five percent unemployment!
    Four quarters growth
    Three Abe’s arrows
    Two percent inflation
    And a printing press and lots of QE.

    On the sixth day of Christmas my true love sent to me
    Six left elections
    Five percent unemployment!
    Four quarters growth
    Three Abe’s arrows
    Two percent inflation
    And a printing press and lots of QE.

    On the seventh day of Christmas my true love sent to me
    Seven investors investing
    Six left elections
    Five percent unemployment!
    Four quarters growth
    Three Abe’s arrows
    Two percent inflation
    And a printing press and lots of QE.

    On the eighth day of Christmas my true love sent to me
    Eight bloggers blogging
    Seven investors investing
    Six left elections
    Five percent unemployment!
    Four quarters growth
    Three Abe’s arrows
    Two percent inflation
    And a printing press and lots of QE.

    On the ninth day of Christmas my true love sent to me
    Nine bankers rigging
    Eight bloggers blogging
    Seven investors investing
    Six left elections
    Five percent unemployment!
    Four quarters growth
    Three Abe’s arrows
    Two percent inflation
    And a printing press and lots of QE.

    On the tenth day of Christmas my true love sent to me
    Ten pols a-fawning
    Nine bankers rigging
    Eight bloggers blogging
    Seven investors investing
    Six left elections
    Five percent unemployment!
    Four quarters growth
    Three Abe’s arrows
    Two percent inflation
    And a printing press and lots of QE.

    On the eleventh day of Christmas my true love sent to me
    Eleven hawks a-crashing
    Ten pols a-fawning
    Nine bankers rigging
    Eight bloggers blogging
    Seven investors investing
    Six left elections
    Five percent unemployment!
    Four quarters growth
    Three Abe’s arrows
    Two percent inflation
    And a printing press and lots of QE.

    On the twelfth day of Christmas my true love sent to me (altogether now)
    Twelve doves a-flying
    Eleven hawks a-crashing
    Ten pols a-fawning
    Nine bankers rigging
    Eight bloggers blogging
    Seven investors investing
    Six left elections
    Five percent unemployment!
    Four quarters growth
    Three Abe’s arrows
    Two percent inflation
    And a printing press and lots of QE.

    A – printing press – and – lots of QQQQQ EEEEEE.

  15. @Tull
    I always had a healthy respect for Joe Higgins (if not for the entirety of his economic policies), the best handballer in the Dail, if only he had something a bit more responsive than haystacks to play against.

    @Seafoid
    “Too risky to lend, too risky to borrow”
    There will be no return to normality, QE or no QE, until the EZ has a functioning central bank, and imbalances are dealt with by means of currency realingment or some other mechanism.
    The only method of dealing with imbalances at present is to stop buying each others goods, a downward demand phase in a race to see who can buy least and sell most.

    re; French view on Merkel:
    I am not overly surprised. In times of crisis all countries wish for what they perceive as a strong leader, whether that ‘leadership’ ultimately ends in disaster or not. [Lets not go into historical examples]
    That is why Le Pen is doing well. She has a policy of leaving the EZ and unlike the Irish Labour party may actually follow through with it. in crisis times people do not appreciate vacillation or uncertainty.

    The Guardian, or more specifically Timothy Garton Ash, in the link above posted by DOCM, gives Merkel ‘statesman’ of the year, principally because of her stance on the Ukraine. Time will tell on that one, but it is interesting how Merkel can turn from obstructionist to advocate, as the perceived national interest requires. Again, on Ukraine, the German national interest, may not the European national interest, and there has been a marked reluctance to spell out the European national interest in closer involvement in the Ukraine, or the costs of such involvement; from people who are utterly obsessed with the cost of everything.

  16. “The only method of dealing with imbalances at present is to stop buying each others goods, a downward demand phase in a race to see who can buy least and sell most.”

    History? Rhyme? That sounds like Smoot and Hawley in 1931 and FDR from March ’33 onwards. Now, how did that not work out? The US had already started a slow economic recovery by mid-1932 (Hoover was still in office). But the ideologically driven FDR administration (substitute: the EU and EZ admins) simply hammered that recovery back down.

    There was no systemic US banking crisis then, just a massive overseas decline in demand for US exports. It was the small local banks that were insolvent, not the majors in Chicago and New York. The internal debt liquidations and deleveraging (substitute: our austerity policies) within the continental US ensured that domestic demand was floored – and only slowly crept up until 1939.

    So what do our EU and EZ boyoes do? They establish their ideologically driven, neocon version of the New Deal – only this time the debts are not being liquidated – their have been internalized (aka: Japan 1900 – 2014) onto domestic consumers, the folk who do all that demanding.

    Now, debts are contractural, and grow due to the magic of compounding interest. So, how is that going to work out for us? It surely won’t!

    Note: QE, however its gussied up, is a crackpot monetary inflation gimmick – which is being issued in the absolute expectation that the credit being created will be taken down by already deeply indebted businesses and individuals, and be invested in productive use. The lunatic rationale for such an illogical proposition is truly staggering – until you realize that that the lads driving this mad policy are supposed to be ‘the smartest’ folk around. Such a shame that they are simply as thick as Yak-shit and possess little by way of an adult level of emotional maturity.

    If this QE stuff is so great, how come some essential industrial raw materials and commodities have decreased in price. Now that would have no relationship to global demand?

    As I mentioned at the beginning. It sure looks like 1930-1932 all over again – but with the unpayable debts left in place. And of course, those 600 million Asian cheap labour units on ‘stand-by’. For what?

  17. Trichet never had the guts to reform the weaknesses of the eurozone. A spoofer in the final analysis. Un tricheur.

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