Wednesday, September 5, 2012

Yglesias on the ECB

Matt Yglesias accuses Mario Draghi of preparing a massive power grab:

What the ECB is doing, in essence, is setting itself up as the shadow government of Italy, Spain, Portugal, and perhaps Ireland. If the governments of those countries do what Draghi wants, Draghi will provide them with generous subsidy. If the governments of those countries don't do what Draghi wants, he'll use a monetary laser to destroy their budgets. Fear will keep the peripheral states in line.


Mitch Guthman said...

I think Matt Yglesias is right. This isn’t remotely a legitimate function of a central bank. If he can print money to rescue these countries and do so within the bank’s mandate then he is obligated to do this regardless of whether they will submit to him politically. As things stand now, Draghi is indeed a tyrant.

This does, however, give me an idea. I think Hollande should use every bit of influence and power that France still commands to have Jean-Luc Mélenchon replace Mario Draghi as head of the ECB. All eurozone nations would then have to embrace the radical solutions of Mélenchon and renounce the failed ideology of neoliberalism or he would destabilize their economies. Then let’s hear what the eurocrats and austrians think about the necessity of central bank independence.

Carambar said...

Mario Draghi action can be considered has a grab of power, but is it really? I think Italian and Spanish governement are more than happy to be "forced" by an "external power". You know, politician are weak when it comes to make bold decision.
What we need to have a more balance solution is a good slow down in China. That would impact the Germany economy. We tend to forget that Germany economic situation is kind of pure luck. Without the chinese equipment boom this country would be in the doldrum. No internal growth, declining population...

Mitch Guthman said...

@ Carambar,

I think that you are missing the point that Matt Yglesias is trying to make. The question is whether the institutions of the European Union must operate as politically neutral institutions, respecting the democratically arrived at choices of the member countries or whether the leaders of those institutions may deploy the power of those institutions to impose their personal political preferences. The fact that Mario Draghi has used the power of his office to demand that the democratically elected governments of the PIGGS submit to his political will should be profoundly disturbing to anybody who values democracy.

What’s more, the reason you are so untroubled is apparently because you think that the policies Draghi is forcing the PIGGS to adopt are good ideas. But that’s why I made my suggestion about appointing Mélenchon as head of the ECB and it’s why you shouldn’t ignore it. How would you feel about a power grab by Mélenchon? From your comment, I suspect the result would be far more to my tastes than yours. Which is my point: If you care about democracy than you should be opposed to the appointed, independent head of the ECB overriding the choices of governments elected by the people.

The point isn’t whether a particular action by the ECB is a good idea or not but rather whether it’s antidemocratic to give somebody like Mario Draghi such a far ranging veto power over the affairs of a member state of what is supposed to be a union of democracies. In short, are the heads of institutions like the ECB the servants of the people or their masters? Do the people rule or do the technocrats?

I say that when Mario Draghi demands submission to his personal political agenda as the price of having a properly functioning central bank, then he is indeed a tyrant and the EU is no more a democracy than is Iran.

Anonymous said...

Absolutely spot on re democracy, currently in great danger in Europe, in my view. However the rot started when Brussels got away with appointing ex-GoldmanS apparatchiks to ru(i)n the democracies of Greece and Italy. That was an outrage and sets a dangerous precedent.