Friday, 23 December 2011

Outgoing ECB executive calls on the ECB to wake up to its responsibilities

Bini Smaghi is no Grinch

I thought it would never happen.   I thought that at the ECB they were all Grinch interpreting monetary policy in the narrow German point of view irrespective of the economic scenario around them.

I have been arguing for months in favour of the ECB using its resources to put out the fire burning in peripheral economies whilst they undergo serious painful austerity inspired restructuring.  I have consistently argued that the ECB was the only pan -EU institution with the tools and capacity to match the market speed and stop the evident slide into an EU depression.  I thought nobody was listening in Frankfurt as they continue to sing from the strict Bundesbank monetary policy hymn sheet.
But now it seems that someone with weight at the ECB is listening.   Lorenzo Bini Smaghi, the outgoing member of the ECB executive has let it out.   In an interview in today's Financial Times he urged the ECB to take bold action.  Read this comment by the FT:

One lesson Mr Bini Smaghi has learnt is that eurozone policy makers cannot opt out of taking bold decisions. “Some of these decisions may not be optimal and may be criticised, especially with the benefit of hindsight. But not deciding, or postponing decisions, is not an option and leads to worse outcomes.” Nor, he says, should decision makers “hide behind lawyers to avoid taking action”.

It is a carefully-chosen remark. Germany’s Bundesbank and Mr Stark, a former Bundesbank vice-president, oppose any significant expansion of the ECB's government bond-buying. 

No they are not all Grinch at the ECB and it is evident that with Mario Draghi's taking over at the helm, the ECB will do what needs to be done to avoid a depression.

My Christmas got better already!

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