If one were asked to describe the formal economic and political processes that have shaped the condition of the eurozone since the eruption of the euro crisis in late 2009 in a terse and peremptory way, he or she might boldly and truly say this: "German Chancellor Angela Merkel's policies spearhead the unraveling of the European project while European Central Bank (ECB) President Mario Draghi seeks to keep the (neoliberal) game going."
Indeed, there is little doubt that Germany's neo-mercantilism is the driving force leading a sizable segment of the eurozone's economy on the path to stagnation and decline (1), while the ECB has been trying hard to carry out the role of a traditional central bank by fulfilling its duty as a lender of last resort in order to save the euro and preserve the eurozone.
The ECB intervened in the euro crisis in May 2010 by buying up government bonds from Greece (even when a 110 billion euros bailout package had been approved for Greece), Spain, Portugal and Ireland under its Securities Market Program. By 2011, the ECB was buying up Spanish and Italian bonds by the bucketload in order to force a drop in the bond yields of the two largest peripheral economies of the eurozone. With the end of the crisis in the periphery nowhere in sight, but Mario Draghi having already pledged in July 2012 to do "whatever it takes" to preserve the euro, in early September of that year the ECB introduced a new government bond purchasing program, known as the Outright Monetary Transactions (OTM) program.
Leaving aside the question as to whether or not ECB's OTM program is legal (Advocate General Pedro Cruz Villalón opined in mid-January 2015 that while "the OTM programme is an unconventional monetary policy measure . . . it is compatible with the TFEU [Treaty on the Functioning of the European Union])" (2), the condition was that OTM would be attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) macroeconomic adjustment program. In other words, the imposition of austerity, privatization and market liberalization was a conditionality in the event of the implementation of the OTM program, which raises an important question: Is the ECB seeking to enforce an economic policy measure rather than just a monetary policy measure?
I think this argument can easily be made in the sense that the ECB has been acting since the beginning of the euro crisis as a bulwark against the unraveling of the European neoliberal project, and it receives additional strength from the latest ECB intervention into the eurozone crisis with its own, unique quantitative easing (QE) program. As for the impact of the OTM-related announcements in 2012, the mere claim that "no ex ante quantitative limits are set on the size of Outright Monetary Transactions" (3) was able to lead to a crucial decrease in Italian and Spanish government bond yields although bond markets in Germany and France showed no reaction to the policy. (4)
The ECB's interventions under former golden boy Draghi (prior to his appointment as ECB president, Draghi had served as Goldman Sachs' international vice-chairman for Europe and governor of the central bank of Italy) may have managed so far to keep the euro game going by providing liquidity to the system and leading to a significant drop in sovereign bond markets (with the exception of Greece) but have hardly made a dent on the feeble performance of the eurozone economy. One should not expect anything different with QE for various reasons.
Firstly, the amount of money to be spent is too little to make any effective impact on the real economy of the eurozone. With official unemployment in the euro area standing at more than 11 percent, and in countries such as Greece and Spain at 25.8 percent and 23.7 percent, respectively, the injection of 1.1 trillion euros into the eurozone economy through a government bond-buying program cannot be expected to help spur sustainable growth by boosting demand that would lead to an improved job market. Furthermore, monetary policy is rather ineffective when interest rates are already near zero. The eurozone's problems in general (most of the indicators of economic health have not even returned to pre-crisis levels in the eurozone) stem from very weak demand growth. The eurozone is in dire need of a superactive fiscal policy geared to stimulate job creation and increase wages. QE cannot do those things nor can it stimulate the expansion of credit when there is no demand for credit. (7)
Secondly, the ECB bond purchases won't work in a manner similar to the quantitative easing measures undertaken by the Federal Reserve, the Bank of Japan and the Bank of England. Most of the bond purchases won't be underwritten by the ECB, but rather by the various national central banks in the eurozone. Essentially, what this means is that the actual sum of money injected into the eurozone via "euro-style QE" (8) will be significantly less than 1.1 trillion euros. This apparent "compromise" on the part of the ECB was made because of Germany and Holland's opposition to risk-sharing.
Thirdly, ECB-style quantitative easing excludes countries that are in the midst of completing bailout programs and/or have junk-rated debt. This means that Greece and Cyprus (with the former having experienced an economic depression of unimaginable dimensions for an advanced European country during peacetime conditions) have been locked out of the quantitative easing program. The ECB claims that Greece may be allowed to join the QE program in July if satisfactory progress has been made with regard to the bailout terms. The decision to exclude Greece was made literally on the eve of the Greek elections of January 25, in which it was certain that the radical left, anti-austerity Syriza party was going to win the coming vote. Undoubtedly, it was a political decision on the part of the ECB in order to exert pressure on a Syriza-led government to stay the course on austerity and neoliberal structural reforms.
From the beginning of the crisis, the ECB has made the preservation of the euro its No. 1 objective (by providing ceaseless support to eurozone banks and its financial sector while the people in the highly indebted nations always end up paying the price) even when Germany practices a "beggar-thy-neighbor policy" in the eurozone, dragged its feet over the Greek crisis, has demanded draconian austerity measures for all the "bailed-out" peripheral economies when they were already in deep recession and remains the greatest obstacle to the creation of a fiscal and banking union in the eurozone.
The ECB is the ultimate enforcer of the European neoliberal project. Its interventions always come with conditions, which further strengthen the conversion process of the eurozone into a neoliberal capitalist nightmare, thereby imposing additional pain on average working people by reducing the standard of living and putting the nail in the coffin of the social state. In the meantime, ECB interventions, as the Financial Times bluntly put it back in 2012, "exact a high price in national sovereignty." (9)
Indeed, as "Super" Mario Draghi has openly and proudly admitted on a number of occasions since the eruption of the euro crisis, the "social contract" in Europe is gone. (10) What the ECB is now aiming at, like the rest of the EU institutional structures, is the expansion and consolidation of the neoliberal social order. As such, labor market activation policies that aim to enhance labor market flexibility (and, by extension, create precarious working conditions) have been a fundamental objective of ECB intervention into the eurozone economy, and they will remain so until the European neoliberal project is completely finalized.
In this context, it is rather surprising to see various European "progressives" celebrating over the ECB's QE measures and other interventions in the eurozone economy under the current regime. By apparently imagining the ECB as a knight in shining armor, they are either being dangerously naïve or incredibly savvy in their defense of capitalism.
1. See Bill Lucarelli, "German neomercantilism and the European sovereign debt crisis." Journal of Post Keynesian Economics, Volume 34, No. 2/Winter 2011-12, pp. 205-224.
2. Court of Justice of the European Union. Press Release No. 2/15. "According to Advocate General Cruz Villalón, the ECB's Outright Monetary Transactions programme is compatible, in principle, with the TFEU." Luxembourg, 14 January 2015.
3. European Central Bank. Press Release. "Technical features of Outright Monetary Transactions." September 6, 2012.
4. See Carlo Altavilla, Domenico Giannone, and Michele Lenza, "The Financial and Macroeconomic Effects of OMT Announcements." ECB Working Paper No. 1707. European Central Bank. August 2014.
5. Ben Chu, "ECB announces historic QE programme worth €1.1trn to stimulate growth in the eurozone." The Independent, January 22, 2015.
6. Phillip Inman, "ECB 'takes out the bazooka' with bigger than expected QE stimulus package." The Guardian, January 22, 2015.
7. Cumberland Advisors, "ECB, Euro, USD, Interest Rates." Investing.com. January 25, 2015.
8. The Economist. "The launch of euro-style QE." January 22, 2015.
9. The Financial Times, "Draghi's bold move in euro chess game." August 2, 2012.
10. Brian Blackstone, Matthew Karnitschnig and Robert Thomson, "Europe's Banker Talks Tough." The Wall Street Journal. February 24, 2012.