The credibility of the ECB has turned into an illusion, just like the prospect of a recovery through money printing

Călin Rechea (Translated by Cosmin Ghidoveanu)
English Section /

The credibility of the ECB has turned into an illusion, just like the prospect of a recovery through money printing

Christine Lagarde, the president of the ECB, talked a lot, but essentially said nothing, in the virtual conference organized by the ECB, which reaplced the Annual Sintra Forum.

It only confirmed the expectations regarding the extension of the long-term bank refinancing program and the Pandemic Emergency Purchase Program (PEPP) in the next monetary policy meeting. "It is likely that these programs will remain the main instruments for adjusting monetary policy," the ECB president said, wihtout mentioning other negative interest rates.

While ECB officials have just announced their readiness to turn another temporary program, namely PEPP, into a permanent one, again in flagrant violation of the provisions of the EU's fundamental treaties, another European institution is asking banks to prepare for next year's wave of non-performing loans .

Elke König, chairman of the Single Resolution Board, the European Banking Resolution Authority set up after the global financial crisis, warned banks that "intensive work needs to be done to separate underperforming and performing loans in the portfolios", while rejecting the ECB's suggestion of creating a network of "bad banks" on a continental level, according to the Financial Times.

In an interview with the financial publication, Ms König also emphasized the need for "urgent harmonization of state aid regulations for banks included in resolution programs".

In other words, the EU and its structures are once again unprepared for a much bigger crisis than the one that happened a decade ago.

Commenting on the FT article one reader asked, rhetorically of course, who would foot the bill in the end and said that "people are currently being

People are now given the impression that the ECB can go on forever, "but this is only an illusion, and" when people lose confidence, things will change very quickly, amid the onset of a fear that is a much greater danger to society than any pandemic. "

Unfortunately, European governments are doing nothing to stop the "speedy march" towards fear. Paolo Gentiloni, European Commissioner for the Economy and former Prime Minister of Italy, recently said that extending the period of suspension of EU budgetary rules may be needed because "the idea of a V-shaped recovery is just an illusion I never believed in", as reported by the Financial Times.

Writer Ayn Rand once said that "you can avoid reality, but you can't avoid the consequences of avoiding reality", and the suspension of EU budgetary rules only amplifies the terrible consequences of avoiding economic reality in Europe.

However, central bankers say it is crucial to launch or expand fiscal stimulus programs, which will be unconditionally "supported" by printing money.

In other words there is a need for permanent "shocks" to keep a vicious circle going, as its shutdown would have disastrous consequences.

Finnish professor Tuomas Malinen artfully describes the phenomenon on his Twitter account: "Central banks are both hostages to heavily indebted governments, corporations and banks, whose failure would almost instantly collapse the world economy and financial markets, but they are also perceived as their saviors".

Unfortunately, the "energy" required not for advancing, but merely for simply maintaining the appearance of "balance," is increasing. And it will continue to grow, as the authorities are incapable of recognizing and accepting the new economic reality, a reality that can no longer be embellished by the even greater going into debt of the population or companies.

"There is simply not enough demand in the global economy, and the monetary policy cannot generate demand", Torsten Slok, chief-economist -of investment firm Apollo Global Management, told Bloomberg.

This verdict of insufficient demand starts, of course, from the comparison with the situation that preceded the pandemic, characterized by an oversized demand compared to the real purchasing power.

It was that demand which led to the excessive "stimulation" of lending for consumption and financial speculation through the ultralax monetary policies practiced by central banks over the last decades.

Hasn't the time come for re-creation using a different foundation, especially amid the "the world will end due to climate change" hysteria, a hysteria fueled by the same authorities that are trying to stimulate the return to an illusory status-quo, but which would accelerate the end of the world?

Despite the statements by ECB officials, such a return isn't possible, because the very credibility of the ECB has turned into an illusion, just like the prospects of a recovery through money printing.

Perhaps the lack of confidence wouldn't have any particular impact if it came from the regular citizens of the Eurozone, who have been "conditioned" anyway to accept anything without comment and to understand "the right way" the edicts of the "grand priests" of central banks, but the lack of trust has now spread among the true-believers.

"It must be acknowledged that central banks are no longer independent, nor credible", Patrick Artus, chief-economist of investment bank Natixis recently wrote in a note addressed to clients.

But how was it possible for the "sacred cow of independence" to be sacrificed? Simple, "by implementing the policy of helicopter money, which means involvement in the fiscal policy of governments", the French economist points out.

And everything has been for naught, as shown by the current situation. Moreover, all of this subordination of the central banks to the fiscal policy has fully contributed to "wrecking" the myth of the competence of central banks.

Artus further claims that the current situation in OECD countries "makes a new monetary expansion extremely ineffective".

But that won't prevent the ECB from extending the PEPP program past the current limit, of 1.35 trillion Euros, and make it permanent, in an unprecedented act of defiance to the European treaties.

It is very likely that the defiance will be overlooked, but it will be impossible for the economic reality to be fooled, especially when the credibility of the ECB itself has turned into an illusion.

"It must be acknowledged that central banks are no longer independent, nor credible".

Patrick Artus, chief-economist of investment bank Natixis

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""Central banks are both hostages to heavily indebted governments, corporations and banks, whose failure would almost instantly collapse the world economy and financial markets, but they are also perceived as their saviors".

Tuomas Malinen, professor at the University of Helsinki

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