Global Independent Analytics
Giuseppe Zaccaria
Giuseppe Zaccaria

Location: Italy

Specialization: Balkans, Yugoslavia

Europe at zero rate

European Bank and Mario Draghi have implemented "the biggest redistribution of wealth in Europe since the post-war era", but monetary policy is not enough to wake Europe from its slumber.

For years, Europeans have been hearing about the forthcoming new policy of European Central Bank (ECB) which means that the advent of ‘zero interest rates’ is finally here. A few days ago, ECB announced that it would cut the interest rate from 0, 05 to zero. And reactions came as lighting in the form of impending rebellion. The global economy is fragile, and several analysts and moneymaking Lords announced that the world is facing a new global crisis, even worse than 2008.

"From today’s perspective and taking into account the support for our measures to stimulate growth and inflation, we don’t anticipate that it will be necessary to reduce rates further. Of course, new facts can change the situation and the outlook", said the ECB chief during the news conference.

What worried the central EU finance institution was that deflation becomes a threat to growth that is critically necessary for the current financial and economic crisis. ECB understands well that something needs to be done to foment growth, and inflation as well. That is why the ECB intervenes in such a way as to pump money into the financial system by discouraging banks from holding on to deposits and encouraging them instead to lend out money as cheaply as possible to businesses and households.

Growth and strong common currency are a precondition for Eurozone's 19 nations to stick together and survive. Such a move was proposed many years ago as a necessity against austerity policy. Today, we could easily say that borrowing became cheaper than ever before.

As British-based "Guardian" reminds us: data in February showed that Greece fell back into recession and Italy slowed to near stagnation. Germany, the eurozone’s largest economy, grew by just 0.3%.

Now, the most important questions that triggered numerous predictions is: "Will all of this work"? Still, none, from the curious and mostly neoliberal world of finance, dare to offer a precise prediction.  For them, Mr. Draghi is just buying a bit of time before announcing the crash, worse than the one we had in 2008. Even though none could say in what way this measurement will act upon the markets, in order to secure the long needed growth the majority agree on the following: monetary policy is not enough to wake Europe from its slumber. Then again, something needs to be done, since austerity measures and resulting pressure on national politics led to a rebellion of the unemployed and the working class, venting their frustrations over several years as could be seen on the streets of EU capitals. This ECB move is official recognition of the fact that all those people and some of the brave economists, among them a few Nobel Prize winners, were completely right!

This was a heavy blow at the German way of acting in the European common market. But in Germany, where money is usually earned in old-fashioned savings accounts, the cheap money approach is fomenting rebellion, writes the "Handelsblatt." And it goes further, asking for a "second opinion" for the therapy prescribed by the ECB which is in essence contrary to German mainstream policy: "One of Germany’s leading conservative economists and a persistent critic of Mr. Draghi and the ECB’s low-interest strategy is Hans-Werner Sinn, the head of Munich’s Ifo Institute for Economic Research. Mr. Sinn has called Mr. Draghi’s approach ‘the biggest redistribution of wealth in Europe since the post-war era.' Wealth is being redistributed, Mr. Sinn has argued, from creditors to debtors, from financially strong to financially weak companies, and from rich to poor economies, without any parliamentary vote".

One supposes that Germany will resist the ECB cure, once again. Germans won’t share the burden with others. Of course, things have been quite turbulent all these years across the Old Continent. And as time passes by, Germany, the richest EU country, has forgotten that at the dawn of her strong development, during the Cold War, it was thanks to other Western European countries that it rose from the ashes and assumed its dominant status.

So, lectures about ‘laziness’ and ‘irresponsibility’ are not the best road to take. At least not, if EU survival is desired.

Across the euro zone, there is €3.3 trillion worth of bonds with negative yields, wrote "Handelsblatt." In Germany, savers have packed €2 trillion into time deposits, current and savings, which is almost a third of all savings deposits in the euro zone. Some of the euro zone’s big crisis-ridden countries are even worse off than they were when the ECB began its "quantitative easing" program a year ago. Greece could still run out of money by the middle of this year; according to the latest figures, Italy’s government debt is at 133 percent of economic output and rising, and Spanish unemployment is still more than 20 percent. To be sure, European political leaders have done little to reform the vast, inefficient sectors of their economies, fearful of a domestic voter backlash. Instead, they are increasingly laying the blame at the feet of Mr. Draghi, concluded German paper by quoting lobbyists from the "City Group,"Bundesbank", and other think tanks that raised their voices against the well-understood redistribution of wealth.

This time, Mr. Draghi seems to be doing his best to save the Euro project.  But among his critics are some of the best minds in the world of economy and finance. One of them is Nobel Prize winner Paul Krugman, op-ed columnist for the "New York Times". Maybe this is the right occasion to remember what he said earlier in 2014 and 2015 when Grexit was on the agenda: “Full disclosure: I know Mario Draghi, a bit, since we overlapped in grad school, and I both like and admire him; he did a fantastic job of containing the euro crisis of 2012. And I like to imagine that he knows and understands more than he can say in his position. The trouble is, what can he do about it? He appeals to a consideration of Euro-wide measures of fiscal stance, which is urging Germany to run bigger deficits, but the Germans aren’t interested,” Krugman wrote in 2014.

The following year, in 2015, ECB declared it wouldn’t accept Greek government bonds as collateral when lending to Greek banks. The initial reaction of some observers was that this was the end and that the ECB was pulling the plug arbitrarily and abruptly. But, Krugman saw it in a totally different light: “You can say many things about Mario Draghi; it’s quite possible that he will fail to save the euro, and very possible that he is making big mistakes, but stupid and crude is not his style. Sure enough, this is a much more subtle action than the initial headlines suggested. This funding channel is one that Greek banks no longer use very much, and it’s not necessarily to keep them afloat; they can continue to borrow indirectly via the Greek central bank. So this is not a crisis-provoking event,” wrote Krugman. And, shedding some (but perfect) light on the real issue by asking a simple question: "Maybe it’s an effort to push the Greeks into reaching a deal, but my guess — and it’s only that — is that it’s aimed more at the Germans than at the Greeks. On one side, it’s the ECB making terrible noises, which might keep Germany off their backs for a little while. On the other, it’s a wake-up call: Dear Chancellor Merkel, we are *this* close to watching a Greek banking collapse and euro exit, and are you sure you want to go down this route? Really?” Krugman concludes. And, maybe Mr. Draghi is just buying time; maybe he is wrong, but what alternatives to this obvious dead end are there?

Related ARTICLES

On Wikileaks’ Revelations – IMF- Merkel - Syriza: Triumvirate of the Absurd

On Wikileaks’ Revelations – IMF- Merkel - Syriza: Triumvirate of the Absurd

We have Paul Mason raising the ‘bad’ IMF vs. the ‘good’ Ms Merkel when he pretends the IMF is interested in ‘debt relief’ for Greece (which Germany opposes).

04 April 2016

by Van Gelis

ALTERNATIVE FOR GERMANY: AN EARTHQUAKE IN GERMAN POLITICS

ALTERNATIVE FOR GERMANY: AN EARTHQUAKE IN GERMAN POLITICS

A new political era in Germany arrived which will undoubtedly have impact all over Europe.

26 March 2016

by Enric Ravello Barber

INTERVIEW WITH MICHAEL STÜRZENBERGER, leader of DIE FREIHEIT party: THERE WILL BE A CIVIL WAR IN EUROPE

INTERVIEW WITH MICHAEL STÜRZENBERGER, leader of DIE FREIHEIT party: THERE WILL BE A CIVIL WAR IN EUROPE

The terrible story of how the government tries to stop people from practicing their freedom of speech rights

12 February 2016

by Lionel Baland

POPULAR ARTICLES

Not Found

OPINION

Vladimir Golstein

Vladimir Golstein

The Danderous Acceptance of Donald Trump

James N. Green

James N. Green

Politics in Brazil: Fasten Your Seat Belts!

Barbara H. Peterson

Barbara H. Peterson

Health officials confirm spread of Zika virus through sexual contact in Texas, first in US

Danny Haiphong

Danny Haiphong

WHY IS OTTO(SUPER)MAN ERDOGAN LOSING HIS CHARISMA?

Miray Aslan

Miray Aslan

How relations between Saudi Arabia and Iran reached a breaking point

Navid Nasr

Navid Nasr

How relations between Saudi Arabia and Iran reached a breaking point

Writers

chief editor

Joshua Tartakovsky

Analysis should serve as a method to better understand our world, not to obscure it.

Materials: 42

Specialization: Israel and the Middle East, US politics

Materials: 7

Specialization: Balkans, NATO and EU policies, Strategic communications

Materials: 3

Specialization: Foreign politics, Immigration, Human rights.

Materials: 2

Specialization: Political Science, Social Anthropology

Materials: 3

Specialization: Eastern Europe

Materials: 14

Specialization: Industrial Safety, Corporations

Materials: 12

Specialization: Eastern Europe, Labor movement

Materials: 3

Specialization: American history, way of life, and principles

Danielle Ryan

Ireland

Materials: 10

Specialization: US foreign policy, US-Russia relations and media bias

Materials: 20

Specialization: War, Racism, Capitalist exploitation, Civil rights

Materials: 8

Specialization: Modern Japanese History, Modern Chinese History, Military History, History of Counterinsurgency, History of Disobedience, Dynamics of Atrocities in Wartime

Dovid Katz

Lithuania

Materials: 3

Specialization: Holocaust Revisionism and Geopolitics; East European Far Right & Human Rights; Yiddish Studies & Litvak Culture

Materials: 20

Specialization: History, Catalunya, Spain, Geopolitics, Nationalism in Europe, Islamization, Immigration

Materials: 5

Materials: 3

Specialization: migration, international relations

Materials: 1

Specialization: Syria, US Foreign policy and strategies, BRICS/SCO

Materials: 19

Specialization: Balkans, Yugoslavia

Materials: 10

Specialization: Jihadist Groups, Islamic Terrorism, Global Security

Materials: 4

Specialization: Geopolitics

Materials: 4

Specialization: Media and government relations

Materials: 2

Specialization: Latin America, Brazil

Jay Watts

Canada

Materials: 2

Specialization: History, Marxism-Leninism, Imperialism, Anti-imperialism.

Materials: 2

Specialization: International Relations, Sociology, Geostrategy

Materials: 1

Specialization: civil rights

Lionel Baland

Belgium

Materials: 22

Specialization: Euroscepticism, Patriotic parties of Europe

Maram Susli

Australia

Materials: 3

Specialization: Geopolitics

Materials: 2

Specialization: Civil rights, Racism, US politics

Materials: 1

Specialization: geopolitics, economics

Max J. Schindler

Palestine-Israel

Materials: 9

Specialization: Politics

Miray Aslan

Turkey

Materials: 12

Specialization: Media, Politics

Materials: 5

Specialization: Politics, International relations

Navid Nasr

Croatia

Materials: 13

Specialization: Global security, Politics

Materials: 9

Specialization: Development of European Union, Non-governmental organizations, Politics and economics in Baltic States

Materials: 9

Specialization: Greece, Crisis of the US hegemony; Israel / Occupied Palestine, Oppression of Black people in the US

Materials: 4

Specialization: geopolitics, Russia, USSR

Pedro Marin

Brazil

Materials: 17

Specialization: Latin America, Ukraine, North Korea

Materials: 13

Specialization: Sustainable development, International relations, Comparative European politics, European integration, Eastern European politics and EU-Russia relations

Materials: 8

Specialization: Politics

Materials: 16

Specialization: Counterterrorist Finance

Seyit Aldogan

Greece

Materials: 3

Specialization: ISIS, Middle East, Globalization, Migrant crisis

Materials: 1

Specialization: Head of "Srebrenica Historical Project"

Materials: 3

Specialization: Economy, Social politics

Stevan Gajic

Serbia

Materials: 1

Specialization: Full time researcher at the Institute for European Studies

Materials: 5

Specialization: Geopolitics, Geoeconomics

Materials: 2

Specialization: Civil rights

Tobias Nase

Germany

Materials: 8

Specialization: Syria, US Foreign policy, Ukraine

Valerijus Simulik

Lithuania

Materials: 2

Specialization: Politics and economics in Baltic States, education and science, non - governmental organizations, globalization and EU

Van Gelis

Greece

Materials: 17

Specialization: Middle East

Materials: 1

Specialization: Kosovo, Serbia, Belgrad bombing

Materials: 5

Specialization: international relations, Russia

toTop