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BackThe role of the European Central Bank and its new Italian boss Mario Draghi in respect of managing the current financial crisis is becoming increasingly clear. Austerity at any price, hence cutting back, regardless of the consequences, was the order of the day. And, the labour markets in the Member States of the Euro zone had to be made more flexible, hence employment protection had to be overhauled, commented the former Goldman Sachs Manager in an interview with the Wall Street Journal. The culmination of Draghi’s interview: the Italian proclaims the end of the European social model. At the same time, his institution floods the banks with cheap money, the extent of which is so far unknown, entailing consequences, which are highly controversial, even among economists.
Almost unnoticed by the public, in December of last year, the European Central Bank (ECB) led by Mario Draghi, the former boss of the US investment bank Goldman Sachs, presented 500 European banks with a special kind of Christmas gift. The banks were given the opportunity of stocking up - at their discretion - with cheap money provided by the ECB, hence at the expense of the European taxpayers. At an interest rate of 1 % with a term of three years; in addition, the requirements on securities, which the banks had to deposit with the ECB for these loans, were significantly eased. An unprecedented event in the history of the ECB. It is therefore hardly surprising that the banks gratefully took up the offer and provided themselves with 500 billion Euros. The ECB did not set any official conditions as to what the banks should do with the cheap money, even though the reason given for this windfall always was that the cheap money was to help banks to grant loans to the manufacturing sector in order to boost growth and employment.
However, in an interview with the Wall Street Journal on 22nd February 2012, the ECB boss gives a distinctive insight into what actually happened to the billions. “It is likely that banks simply repurchased their own bonds coming due”, said Draghi. This is added by the fact that there can hardly be any simpler business for banks than borrowing money from the ECB at an interest rate of 1 % and subsequently investing it in government bonds at an interest rate of 4 % or more. Extra earned money for the financial institutions at no risk.
But this is not all. The Christmas gift presented to the banks in December was handed out again this Wednesday. Hence, this week again, the financial institutions grabbed another cheap 530 billion Euros at the ECB. “It would be foolish to reject money which only costs one percent for three years”, admits an Italian top banker in an interview with a daily paper. What is also bizarre: not only banks, but also multinationals such as Daimler, Peugeot, Volkswagen, Siemens and BMW, which have a bank licence, are able to take part.
The financial markets are happy about this windfall by the ECB; the stock markets have been soaring since December. It is therefore a fitting comment when Draghi mentions stock markets in reply to the question which were the first statistics he would look at in the morning.
What is clearly not fitting from the employees’ point of view, are the ideological comments of the top central banker on economic and social policy in Europe. Not only that the ECB as part of the so-called troika made up of European Commission, International Monetary Fund (IMF) and ECB distributes bitter austerity pills at the expense of employees and pensioners in the beleaguered Member States of the Euro zone, which in the opinion of the overwhelming majority of economists push the countries even closer to the abyss. Draghi even goes as far as to proclaim the end of the European social model, an exceptional gaffe for a European top politician. His recipes for solving the crisis are also sending shivers down the spines of employees: saving at any price, so-called structural reforms and interventions in the labour market. Pure neoliberal ideology without any consideration for the real effects on the people in the countries concerned. Hence, the former chief economist of the IMF and vehement critic of banks, Simon Johnson calls Draghi’s recipes an “illusion”.
From the point of view of the trade unions and the labour representatives, this obvious ideological about-turn in the economic orientation of one of the central institutions of the European Union is extremely worrying. The first signs of resistance against this form of politics have already appeared on the horizon. Hence, this week, the Belgian trade unionists, who took part in the European day of action against the austerity policy of the EU, voiced their anger in front of the Belgian Central Bank. And conservative media are also warning against the consequences of the ECB course and the cheap windfalls to the banks. “Thanks to the new ECB offer, banks and states will depend on each other more than ever before and the vicious circle will be strengthened again, said Jörg Rocholl in the German Handelsblatt.
It would therefore be urgently required that Draghi and Co. start to think about structural reforms and a strict regulation of the financial markets, instead of pursuing an economic course, which has already taken the EU to the limit of what can be politically, economically and socially tolerated.
Interview with ECB President Mario Draghi in the Wall Street Journal
However, in an interview with the Wall Street Journal on 22nd February 2012, the ECB boss gives a distinctive insight into what actually happened to the billions. “It is likely that banks simply repurchased their own bonds coming due”, said Draghi. This is added by the fact that there can hardly be any simpler business for banks than borrowing money from the ECB at an interest rate of 1 % and subsequently investing it in government bonds at an interest rate of 4 % or more. Extra earned money for the financial institutions at no risk.
But this is not all. The Christmas gift presented to the banks in December was handed out again this Wednesday. Hence, this week again, the financial institutions grabbed another cheap 530 billion Euros at the ECB. “It would be foolish to reject money which only costs one percent for three years”, admits an Italian top banker in an interview with a daily paper. What is also bizarre: not only banks, but also multinationals such as Daimler, Peugeot, Volkswagen, Siemens and BMW, which have a bank licence, are able to take part.
The financial markets are happy about this windfall by the ECB; the stock markets have been soaring since December. It is therefore a fitting comment when Draghi mentions stock markets in reply to the question which were the first statistics he would look at in the morning.
What is clearly not fitting from the employees’ point of view, are the ideological comments of the top central banker on economic and social policy in Europe. Not only that the ECB as part of the so-called troika made up of European Commission, International Monetary Fund (IMF) and ECB distributes bitter austerity pills at the expense of employees and pensioners in the beleaguered Member States of the Euro zone, which in the opinion of the overwhelming majority of economists push the countries even closer to the abyss. Draghi even goes as far as to proclaim the end of the European social model, an exceptional gaffe for a European top politician. His recipes for solving the crisis are also sending shivers down the spines of employees: saving at any price, so-called structural reforms and interventions in the labour market. Pure neoliberal ideology without any consideration for the real effects on the people in the countries concerned. Hence, the former chief economist of the IMF and vehement critic of banks, Simon Johnson calls Draghi’s recipes an “illusion”.
From the point of view of the trade unions and the labour representatives, this obvious ideological about-turn in the economic orientation of one of the central institutions of the European Union is extremely worrying. The first signs of resistance against this form of politics have already appeared on the horizon. Hence, this week, the Belgian trade unionists, who took part in the European day of action against the austerity policy of the EU, voiced their anger in front of the Belgian Central Bank. And conservative media are also warning against the consequences of the ECB course and the cheap windfalls to the banks. “Thanks to the new ECB offer, banks and states will depend on each other more than ever before and the vicious circle will be strengthened again, said Jörg Rocholl in the German Handelsblatt.
It would therefore be urgently required that Draghi and Co. start to think about structural reforms and a strict regulation of the financial markets, instead of pursuing an economic course, which has already taken the EU to the limit of what can be politically, economically and socially tolerated.
Interview with ECB President Mario Draghi in the Wall Street Journal