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Home Publications Blogs Beat the Press What About the ECB's Reputation as a Competent Central Bank?

What About the ECB's Reputation as a Competent Central Bank?

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Friday, 07 May 2010 05:43

In an article on the Greek crisis, the Post noted that the European Central Bank (ECB) could: "use its essentially limitless ability to create money to stanch the crisis." It then added: "though doing so could hurt the long-term credibility of the central bank as an inflation fighter that does not yield to politics."

It is not clear how rescuing Europe's economy implies that the ECB had decided to "yield to politics." This is an invention by the Washington Post. Central banks are supposed to intervene to help economies in this sort of crisis, that is why governments create them. If the ECB fails to act to stem this crisis, when it obviously has the power, its reputation and Europe's economy will suffer serious consequences.

Comments (4)Add Comment
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written by RW, May 07, 2010 9:24
It is also not correct on the premise. The ECB is discounting greek bonds from banks, and has even suspended the rating criteria for greek debt. This is pretty much the same as monetizing the debt.

On the other side, the repsective volume compared to the eurozone economy or just its output gap makes inflation concerns a bit overblown. And yes, I think the ECB knows this.

bernanke as man of year
written by frankenduf, May 07, 2010 10:17
not to mention the utterly absurd concept of bank credibility in the Great Recession environ- time and again, the big banks, through the voice of their leaders (greenspan, bernanke, blankfein, lehmann, et al), have denied accountability, corruption, and fraud- at this point lucifer appointing some guy named antichrist to head the world bank would be about as credible
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written by Moruobai, May 07, 2010 11:58
"If the ECB fails to act to stem this crisis, when it obviously has the power, its reputation and Europe's economy will suffer serious consequences."

Oh come on. The ECB's reputation is already totally discredited and Europe's economy is already in a deflationary depression. The time for 'stern' action was 14 months ago.
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written by zinc, May 07, 2010 6:57
"Competent Central Bank" is truly an oxymoron in the age of Reaganism (supply side). In Greenspan's book, he reflects on the moment in 1998 that he and Bob Rubin realized that "the US could no longer exist as an oasis of prosperity in a sea of poverty" (paraphrase). That, I believe, was the seminal moment in which rationality gave way to Milty Friedman goof ball economics. The coordination of monetary stimulation, combined with Randian deregulation, across the globe, began in earnest resulting in the debt laden, systemically risky world economy we now have.

Europe has been mercantilist for ten centuries. Locked in deminimus internal consumption and high unemployment for several decades, the slow growth European Union gladly grabbed at the chance to merc to the US consumer market.

Mercantilist Europe has no "politics" that would allow them to yield their balance sheet to save Greece. They will look to the US to bail out their fallen heroes.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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