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European Central Bank Becomes Social Policy Executor

With the Greek elections in the rear-view mirror but the fundamental issues in the Eurozone still unsolved, the political leadership is still scrambling to come up with some answers. You could see the difficulty with this today, when the German Foreign Minister suggested that the timeline for the Greek bailout/austerity regime could be extended a bit, but Chancellor Angela Merkel insisted there would be “no leeway” on Greece’s commitments. Nobody can get their story straight.

Paul Krugman writes today that the biggest worry is the sigh of relief on Greece’s elections may “encourage the Germans and the ECB to persist a bit longer with their fantasies about how things might work.” But I have a bigger worry. It’s that the ECB will continue to see themselves as tinkerers of the social order rather than a central bank. This latest plan to halt the crisis, spurred by continuing rising debt yields in Spain and elsewhere, is appalling as a policy document.

The head of the European Central Bank and other euro zone leaders worked on Saturday on a grand vision for the euro zone meant to reassure investors and allies that flaws in the currency union will be addressed quickly.

The plan will include measures to prevent bank runs and reduce what has become a vicious cycle of government debt problems turning into banking crises, as has happened in the past two years. In addition, the plan will push for countries to remove the regulations and layers of bureaucracy that inhibit competition, keep young people out of the work force or make it difficult to start a new business […]

Mario Draghi, the president of the central bank and one of the authors of the plan, said Friday that it would be unveiled within days, ahead of a meeting of European leaders at the end of June.

The European Central Bank has no fiscal policy or labor market expertise. They have no deep insight into the effects of labor regulations on job growth. And if they think they do, that’s the main problem right there. The ECB, as the central bank attached to the euro, should have a monetary policy function. This they’ve largely abandoned. But because they still hold control over the printing press for the euro, they can bully sovereign nations into adopting neoliberal market reforms without the democratic consent of the governed. This is what the ECB has become, not a mechanism for conducting monetary policy, but a mechanism for conducting social policy. And by the way, considering that the entire Eurozone is at flat growth right now, and that austerity has, just as predicted, induced widespread suffering and no relief on budget deficits, it’s high time that the architects of the policy shut their damn mouths about what’s “right” for Europe, at least until they start executing their actual job functions.

If the people of Europe want the United States of Europe, and all the loss of sovereignty and the fiscal transfer policy that entails, then they should get a vote to inaugurate the United States of Europe. At the moment, Mario Draghi is carrying forward a unique version of this kind of fiscal union for them, without their consent, one which confers none of the benefits and all of the costs.

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David Dayen

David Dayen