Publicado originalmente em 13/03/2016
The road to hell may be paved with good intentions, but it might not be ready for the speed with which the EU is seemingly determined to reach Hades. Brussels may yet fester for years but multiple unresolved crises are unraveling the EU.
On the fiscal front, a touching belief in the ‘magic money tree school of economics’ pervades the deepest recesses of the ‘Euroblob’. Brussels remains a hotbed for the bizarre anachronism that central government delivers growth… Meanwhile, other channels continue to chronicle the real-time demise of Venezuela and wretched poverty of North Korea.
Even as it became clear that EU politicians egging banks to consume as much Eurozone debt as possible was untenable, EU decline was far from assured. However, having foolishly protected banks, the ‘Euroblob’ has endured prolonged continental drift, bereft of coherent leadership. Like all failing empires, a few nations have been subjugated at debt show trials (“pour encourager les autres”) and sentenced to more fiscal penalties, which are simply never going to be repaid.
Multiple false dawns later, perennial presidential claims that recovery is just around the corner have vanished as the brutal realization dawns: this decline looks permanent. The Eurozone economy today is a withered entity, appreciably smaller than in 2008. Meanwhile, Chinese GDP has more than doubled.
The European Central Bank has married the worst of central banking hubris with traditional EU political practice. Thus ECB boss Mario Draghi talks tough without supportive action. Draghi’s “Super Mario” moniker is absurd; even Donkey Kong could have managed the Eurocrisis better.
Draghi’s core failure was classic Euro-political hubris: threaten loudly and the market will eventually realize your words are hollow. Investors are rightly skeptical of an EU which beggars its citizenry in the pursuit of an Imperial fantasy. Worse still, the EU has implemented vast swathes of new regulations which simply leave bankers and investors bewildered.
Under Draghi, the ECB has behaved like the fiscal equivalent of one of those video games. Somewhere in a European financial centre, Super Mario emerges from a limousine brandishing weapons of increasing complexity and claims nothing will stop him from using it to blow a hole in the recessionary forces encircling Europe.
Thus an arsenal – bazookas have been a particular fetish – are displayed, then quietly set back in the trunk of the limousine which screeches off to yet more speaking engagements…
Euro crisis monetary action has played out akin to an unsuspecting individual chancing upon a comatose body. Enthusiasm has given way to anxiety and a vestige of panic as more advanced treatments have singularly failed to ameliorate the patient’s condition.
Fiscally, interest rates have gone negative (the ECB charges banks who entrust (sic?) it with your money). Instead of lending to the real economy, all parties concerned are just panicking – particularly Europe’s savers, sacrificed on the altar of the Euro.
So, provided you ignore any humane response and turn fiscal logic on its head, ECB policy is pretty easy to understand. However, waving a bazooka in a bank and threatening customers if they don’t shop vigorously is, well, somewhat counterproductive.
The ECB is now spending 80 billion Euros ($90 billion) per month buying government and corporate bonds (with a Euro-protectionist twist, only EU company debt is eligible, further discouraging foreign investors).
In other words… Faced with a drought-ridden football field, the ECB is indiscriminately spraying the sun-baked soil with liquidity, creating a sodden muddy mess, not a luscious green pitch ready for a new season.
Markets like confidence. The ECB’s announcement of a 20 billion Euro per month increase last week was greeted as great news for a split second until investors realized… this move was nothing more than desperation!
Thus, the ECB is now spending monthly to bail out banks it ought never to have rescued in the first place, the same amount as has been budgeted for the entire EU innovation centerpiece Horizon 2020 mega-research programme over 7 years.
Cheer up, the worst is yet to come…