The ECB: Both a Solution and a Problem for European National Policies

The European Union is repeating the same mistakes the United States made during the Great Depression of the 1920s and 1930s. Europe needs fiscal stimuli and budget deficits. Unemployment and the decline in purchasing power are not the result of “budgetary indiscipline,” but rather stem directly from weak demand. This lesson from the Great Depression is ignored by the European intelligentsia, which, instead of using stimulus measures to avoid a liquidity trap, is paralyzed by the Stability and Growth Pact, synonymous with austerity. This dogma is turning Europe into an economic desert. How can we overcome the self-fulfilling prophecy that less demand mechanically leads to… even less demand, and thus to less production? And how can we explain to our leaders, who often lack knowledge in this area, the difference between macroeconomics and microeconomics?

It is now vital for the entire Union that the only institution still endowed with powerful leverage – the European Central Bank – breaks this stranglehold of austerity and underinvestment that is slowly suffocating our economies. Answerable to no one, our European Central Bank nevertheless has sanctioning powers, including over national policies, because the instruments at its disposal can play an active role – even through their non-use – on the outcome of our national elections. This famous “spread” between French and German debt, which doom-mongers constantly predict will diverge and worsen to France’s detriment, is entirely dependent on the goodwill and action of the ECB, which has perfect control over it. Only it can use a tiny portion of its arsenal to bring the two curves closer together and thus demonstrate to speculators its unwavering determination. Unfortunately, the ECB is not a neutral central bank: it has repeatedly proven its ability to coerce national states. Over the years, it has not hesitated to let – and even intensify – panic winds on the various bond markets of European black sheep that deviated from strict fiscal orthodoxy.

Today, following the dissolution of the National Assembly in France, could the strategy of the highest European authorities be to let the Franco-German spread widen to fuel fears about certain candidates? The fact is that markets only gain the power to ravage a country when the Central Bank lets them. The ECB must therefore act and fulfill its sacred duty to protect European nations from the ravages of speculation. The central banker can take refuge in splendid isolation and claim independence. In an increasingly depressed European context, without a national currency to devalue to restore competitiveness, only the ECB is responsible for regulating demand within the zone it controls. It has the fire extinguishers: it must use them or at least loudly proclaim its determination to do so.