Monday, 16 May 2011

Don't frighten the chislers

Slí Eile: The article is picking up a lot of hits over on here.


Rory O'Farrell said...

Good article.

Just as extra information, the share capital of the ECB is only about €11bn. So if they take a loss of over €11bn (a highly plausible scenario) they are 'bust'. This means they either have to go cap in hand to the Eurozone member states asking them to plug the hole, or in an extreme situation they could print the money (which goes against all central bankers believe in).

I just thought this is relevant when thinking of the various threat points.

Michael Taft said...

Excellent point, Rory. The point of my post was, taking one aspect of the debate, to escape the manichean analysis and end-of-days solutions that dominates the discourse. That, and the lazy caricatures we create for others. The ECB is not the source of all evil; anymore than they are agents of salvation. They are an institution, staffed by men and women who are just as susceptible to mistakes, group-think and policy-inertial as any of us. To expect the ECB not to act like a central bank is a problem not for the ECB but the holders of that expectation.

Analysis should be concerned with describing the room for policy manoeuvre within the context of other's room for manoeuvre. Politics should be concerned with widening that room, creating new options.

To identify what other can do and can't is, therefore, a necessary element.

BTW, do all central banks find printing money anathema? After all, other central banks have done it, the ECB has played with special measures (providing funding for banks) - the Fed has gone for it twice. Printing money should be treated as a means to an end, to be used when needed, to be avoided when detrimental. Money is functional - the sole determinant is economic need. Or, at least, it should be.