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In economics, everyone is always looking to blame everyone else. But the fact remains that, once the initial recessionary shock is over, whether or not an econo

In economics, everyone is always looking to blame everyone else. But the fact remains that, once the initial recessionary shock is over, whether or not an economy recovers depends almost entirely on whether the central bank follows mainstream economic principles, or the pseudo-principles that are popular among politicians and pundits. Israel and Australia are known for executing the former. The Fed split the difference. The ECB has taken overwhelmingly the latter course, and Europe is paying for its love of convenient, self-flattering economic narratives. The policies and the policy effects of central banks are measurable in elementary ways. This is not an opinion. It's very important to realize the role of the ECB and the Euro in this recession, because the current popular alternative--mindless national hatred--has not turned out very well for Europe, historically speaking.

nhaehnle 13y ago
I largely agree with what you write, but I'm somewhat skeptical about blaming the ECB. The thing is, it seems that monetary policy is actually pretty powerless when your goal is to increase economic activity (rather than slowing it down). Point in fact, what could the ECB have done better? They could have reduced interest rates faster and more aggressively, but would that really have changed so much? What else could they have done? I think the blame lies squarely on fiscal policy, namely the European obsession with austerity. Mainstream (that is, non-pundit) macro-economics correctly predicted that austerity would hurt, yet European politicians still follow that prescription. In part, the structure of the Eurozone is at fault. If the automatic stabilizers like unemployment insurance and other social programs had been a part of a supranational budget, the crisis would never have become as deep.
- jaggederest 13y ago
  The problem is their messaging. If they stood up and said to politicians "You must spend money to pull your economies out of the slump", it would have been much better. Also, even if it wouldn't have been that effective, more aggressive interest rate moves would have done something, and that something on the margin means less suffering in the world.
nolok 13y ago
I don't know much about economy but my understanding of it is that, given their accounts faking and the resulting over-inflated GDP the greek would have tanked either way. But the eurozone almost following them in the abyss and being in the hurt for years ? That entirely on us.
twelvechairs 13y ago
Isn't it a bit much to say how the world's major financial problems could be solved if they only listened to you? This also wasn't even the question asked.
dualogy 13y ago
> The ECB has taken overwhelmingly the latter course Not seeing this. Unlike most national central banks, the ECB is also not concerned with national economic issues such as fiscal balance, tax revenues, employment numbers, national trade balance etc. (This may well turn out to be a blessing in the medium-term or long run. Perhaps by design?) They're exclusively tasked with maintaining a certain level of price stability within the eurozone. Draghi even declared recently that they don't even give a hoot about the EURUSD exchange rate! Now maybe internally they do care about it emotionally, but it's not their mandate to worry about it. Now granted, with their weight they did have the resources to buy up some 200B of "temporarily tanked" eurozone government debts in a time of crisis, which they then sold on at a later point "for a profit" (nominal, not that I think they really care, but a good for the public), which elegantly weathered "the euro crisis". Not the Greek or Spanish or Italian economic woes, to be sure. But "the euro crisis", back in 2011 or so. Done deal. (Good thing, I think personally, they're not blanko-buying-up $1 trillion of EU government debts per year currently... sure the Greek equivalent of the S&P500 might "soar" for a year or two but it wouldn't be felt on the ground, I don't think... )
disputin 13y ago
I don't see the ECB's actions as problematic, rather the fact that there is an ECB. The numerous countries with differing economies using the same currency means that they cannot each be controlled according to their individual needs. Too tightly coupled.

nhaehnle 13y ago

I largely agree with what you write, but I'm somewhat skeptical about blaming the ECB. The thing is, it seems that monetary policy is actually pretty powerless when your goal is to increase economic activity (rather than slowing it down). Point in fact, what could the ECB have done better? They could have reduced interest rates faster and more aggressively, but would that really have changed so much? What else could they have done? I think the blame lies squarely on fiscal policy, namely the European obsession with austerity. Mainstream (that is, non-pundit) macro-economics correctly predicted that austerity would hurt, yet European politicians still follow that prescription. In part, the structure of the Eurozone is at fault. If the automatic stabilizers like unemployment insurance and other social programs had been a part of a supranational budget, the crisis would never have become as deep.

jaggederest 13y ago
The problem is their messaging. If they stood up and said to politicians "You must spend money to pull your economies out of the slump", it would have been much better. Also, even if it wouldn't have been that effective, more aggressive interest rate moves would have done something, and that something on the margin means less suffering in the world.

nolok 13y ago

I don't know much about economy but my understanding of it is that, given their accounts faking and the resulting over-inflated GDP the greek would have tanked either way. But the eurozone almost following them in the abyss and being in the hurt for years ? That entirely on us.

twelvechairs 13y ago

Isn't it a bit much to say how the world's major financial problems could be solved if they only listened to you? This also wasn't even the question asked.

dualogy 13y ago

> The ECB has taken overwhelmingly the latter course Not seeing this. Unlike most national central banks, the ECB is also not concerned with national economic issues such as fiscal balance, tax revenues, employment numbers, national trade balance etc. (This may well turn out to be a blessing in the medium-term or long run. Perhaps by design?) They're exclusively tasked with maintaining a certain level of price stability within the eurozone. Draghi even declared recently that they don't even give a hoot about the EURUSD exchange rate! Now maybe internally they do care about it emotionally, but it's not their mandate to worry about it. Now granted, with their weight they did have the resources to buy up some 200B of "temporarily tanked" eurozone government debts in a time of crisis, which they then sold on at a later point "for a profit" (nominal, not that I think they really care, but a good for the public), which elegantly weathered "the euro crisis". Not the Greek or Spanish or Italian economic woes, to be sure. But "the euro crisis", back in 2011 or so. Done deal. (Good thing, I think personally, they're not blanko-buying-up $1 trillion of EU government debts per year currently... sure the Greek equivalent of the S&P500 might "soar" for a year or two but it wouldn't be felt on the ground, I don't think... )

disputin 13y ago

I don't see the ECB's actions as problematic, rather the fact that there is an ECB. The numerous countries with differing economies using the same currency means that they cannot each be controlled according to their individual needs. Too tightly coupled.