November 01, 2011
Dean Baker
Al Jazeera English, November 1, 2011
See article on original website
In the last month, people from around the country and around the world have picked up on the Occupy Wall Street theme of retaking the country from the wealthy. Insofar as this sentiment gathers force in Europe, there is probably no place better for people to plant themselves than on the steps of the European Central Bank (ECB).
More than any other institution the ECB is responsible for the economic wreckage that has overtaken the European economy. In the years when housing bubbles were building across much of the eurozone and the United States, the ECB looked the other way. Its position at the time was that these bubbles and the huge imbalances they created were not its concern. Its concern was keeping the inflation rate at 2.0 percent.
This single-minded obsession with the inflation rate at a time when the economies of the eurozone and the world were on the edge of disaster is akin to Kodak insisting that its business line was photographic film at a time when digital photography was exploding. Competent business people adjust their business plans when the world changes. In the same vein, competent central bankers reorder their priorities when the economic situation requires changes.
But the ECB ignored the housing bubbles and the economy came crashing down around them. This may have been due to incompetence or it may have something to do with the fact that many of their friends in the banking industry were making lots of money financing the bubbles. Either way the consequences for the European people are the same.
However, this was only the beginning point for the ECB’s attack on the European people. With the European economy badly depressed, just like the U.S. economy, the responsibility of the central bank is to do whatever it can to reflate the economy to get growth up and unemployment down. The Federal Reserve Board has to some extent picked up this charge, pushing its overnight lending rate to zero and engaging in multiple rounds of quantitative easing.
The ECB has been much less ambitious. It never lowered its lending rate below 1.0 percent. Remarkably, it actually began to raise rates last spring, apparently out of concern for inflation, even as the eurozone economies remain far below any measure of potential GDP.
But this is not the worst of the ECB’s plans for the people of the eurozone. The ECB, along with the European Commission and IMF (often referred to as the “troika”), has been taking advantage of the fiscal crises created by its own mismanagement to take away gains that Europe’s workers have won over the last four decades.
They have done this piecemeal; imposing harsh demands on one country after another as a condition of getting the support that they need to finance their deficits. This is especially pernicious because the ECB’s relatively tight monetary policy has directly contributed to the budget crises by slowing growth and leading to higher interest rates on government debt. Furthermore, the government cutbacks demanded by the ECB also slow growth, making the deficit problems even worse.
And the cutbacks instituted in one country invariably feedback on its trading partners. In other words, if Greece and Spain buy fewer imports, because the ECB has demanded that they cut back their budgets, then France and Italy will have fewer exports. In this way, the growth slowdown becomes self-perpetuating and the crisis becomes ever deeper.
Rather than reversing course and encouraging policies that will promote growth and employment, the ECB and its troika partners are taking advantage of the situation to demand that countries make changes such as raising the retirement age, lowering the minimum wage, and reduce employment protections for workers. Insofar as the ECB gets its way, most of Europe’s population will be much worse off. Of course, European business leaders might still be happy, since higher unemployment rates and weaker protections will give employers much more power over their workers.
It is important that the European people recognize that the ECB is not operating as a neutral institution that is trying to foster growth and economic stability. It is pushing an agenda that seeks to bolster the interests of the wealthy to the detriment of the rest of the population. And it has the ability to impose its will over the objections of democratically elected governments through the enormous economic power that it has been given.
For this reason, the ECB is an ideal target for a popular movement. If the people of Europe want to have control over their destiny they cannot allow a small clique to run the central bank for their interests. This is a problem that we also face in the United States, but the Federal Reserve is a bastion of democratically accountability compared with the ECB. If there was ever a place that needs to be occupied by people looking to retake control over their lives, it is the ECB.
