Ted Obvious writes from Frankfurt: Well, here we go again. The European Central Bank (ECB) has announced a new initiative that is supposed to ease the debt crisis in the Eurozone. In case you’re not aware of it, the ECB is the financial institution of the European Union and the reason it is based in Frankfurt is because Germany that has been benefiting from the single currency more than any other country in the Eurozone, until the whole cosy set up crashed, basically calls all the shots, along with Brussels, when it comes to taking major fiscal decisions. (Who needs a war when you get everyone dancing to your tune by imposing financial conditions on them.)
The latest initiative in the supposed war against the debt crisis in the Eurozone was announced by ECB president Mario Draghi and involves buying up government bonds of countries like Spain and Italy that are struggling to raise money on the markets. Mr Draghi, who obviously thinks that most people around him are total idiots and that he can get away with anything he says, had the nerve to claim that his plan would provide a ‘fully effective backstop’ to the crisis and allay all fears about the euro going down for good. ‘Irreversible’ was the word he used when he talked about the single currency that is currently in a coma, if we compare it to a dying person, and is drip fed with cash injections by the ECB.
Anyway, the moment Mr Draghi came out with the great plan, markets across the world rallied and the respective indexes shot up. Markets, as you know, include so-called investors most of whom are brokers and traders who work on behalf of banks and speculators who are in it for a quick buck. So all these people rejoiced when they heard the news that the ECB was going to blow hundreds of billions of euros on buying government bonds from all sorts of financial institutions and, yes, you’ve guessed it, speculators.
And now let me explain to you how this whole plan would work. It amounts to a round of quantitative easing, packaged as an honest attempt to, and I quote Mr Draghi here, address severe distortions in government bond markets based, as he called it, on ‘unfounded fears’. He also talked about maintaining financial stability and acting strictly within the ECB mandate, but that doesn’t really mean anything once you grasp the essence of his plan.
And this is what the plan boils down to: the ECB that is funded by the European taxpayers, in case you don’t know about it, will start buying up Spain’s and Italy’s government IOUs that are not worth a lot these days from the banks and speculators for a good price. On the face of it, the banks would then be expected to invest this money into the real economy but in reality the new billions would be used to cover up the black holes in the books and gambling on the markets. That is what quantitative easing amounts to: a bail out of the banks through the back door.
Now you may ask: but what should the ECB have done? Well, the ECB could have injected these billions into the national economies of Spain and Italy and other Eurozone countries directly, giving their respective economies a boost. And that would have worked wonders for the whole European situation.
Unfortunately the ECB and the EU are more preoccupied with helping out the banks which are supposed to be the cornerstones of the economy. Even though they are nothing of the kind and are causing all the problems in the first place.