Why ECB hikes rates
There is scarcely a flicker of internal, “demand-push” inflation in the eurozone, unlike the Anglo-Saxon economies where the labour market is tight.
ECB raised rates twice in 2011 just as the post-Lehman rebound was petering out, and just as southern Europe was being subjected to austerity overkill. It was this ill-timed monetary tightening that triggered the eurozone debt crisis.
One can understand why the governing council felt it had to act. Eurozone headline inflation is 8.6pc. Bild Zeitung in Germany is near apoplexy (hjärnblödning).
Negative rates and QE may have helped the Latin bloc but they have been poisonous for Germany, where they have wrecked the local cooperative and savings banks that underpin the Mittelstand family firms.
The working class keep their savings in deposit accounts. Almost half the population rents rather than owning property, and few of them have any financial assets.
Nowhere more than Germany has the Lumpenproletariat been left behind by the inequalities of QE asset enrichment.
The anti-fragmentation tool gives the ECB sweeping powers to decide when to rescue a country and stave off default, and when to leave it defenceless.
By this mechanism, it can dictate budget policies, or enforce pension reforms, or order changes to labour law, without a democratic mandate. It can keep obedient pro-EU governments in power, and topple those with a different ideology à la Grecque.
This is not new. The ECB brought down Italy’s Silvio Berlusconi in 2011 by manipulating yields and installed a Eurocrat more to their liking, as was once explained to me in vivid detail by a disgusted ex-member of the governing council.
Eurosceptics said it was reckless anthropology to foist monetary union on states with starkly different societies and histories, different commercial practices and housing markets, different debt burdens and sensitivities to interest rates, and different trade exposure.
They warned that this one-size-fits-all regime would lead to chronic intra-EMU friction, punctuated by crises at cyclical turning points.
And so it has proved.
Ambrose Evans-Pritchard Telegraph 26 July 2022
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