tag:blogger.com,1999:blog-7439628176985419293.post5312626661788621002..comments2023-11-02T08:28:40.590-04:00Comments on Twenty-Cent Paradigms: Is the ECB Determined to Go Down with the Ship?Bill Chttp://www.blogger.com/profile/01081319025032071808noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-7439628176985419293.post-48433730208790585392011-11-15T08:35:44.789-05:002011-11-15T08:35:44.789-05:00Thanks for the comment.
That's a fair point ...Thanks for the comment. <br /><br />That's a fair point that lending to soverigns is different from the more usual conception of "lender of last resort" to the banking system (which the ECB has been doing). I'd originally wanted to note that but it didn't fit with the flow of the post, so I'm glad you brought it up. The Gavyn Davies post I linked to discusses the implied resource transfer.<br /><br />I think its also worth remembering that the booms in the peripheral countries were fueled by rates that were too low for them because they were set by the ECB based on European averages (high weight on Germany) and that the beneficiaries of "bailouts" are the creditors at least as much as the borrowers. That is, I think there are some weaknesses in the general virtuous northerners versus slovenly southerners story.Bill Chttps://www.blogger.com/profile/01081319025032071808noreply@blogger.comtag:blogger.com,1999:blog-7439628176985419293.post-57389762340366626052011-11-15T06:54:06.030-05:002011-11-15T06:54:06.030-05:00Comparing the ECB to a normal central bank is a ve...Comparing the ECB to a normal central bank is a very questionable exercise. A normal central bank acts as lender of last resort for COMMERCIAL BANKS, not for geographical areas or countries – as is the case, or potentially is the case with the ECB. <br /><br />As for Barry Eichengreen and Martin Wolf, they don’t seem to grasped the point that if the ECB buys limitless volumes of dodgy periphery debt, this amounts to a subsidy by responsible shareholders in the ECB (Germany etc) of less responsible shareholders (the periphery).<br /><br />There are no prizes for guessing what Greeks would do if their debt was effectively written off or “haircutted”: they’d award themselves pay increases, earlier retirement: all the usual goodies they’ve grown accustomed to helping themselves to.<br /><br />That is not to say that the EU as opposed to the ECB couldn’t subsidise the periphery. But that is a POLITICAL decision: not a decision for a central bank. The south east of England subsidises the less well off areas of England: the decision to do that is taken by politicians, not by the Bank of England.<br /><br />Plus the cultural and emotional ties between different areas of a given country (like England) are sufficiently strong that the wealthier parts of such countries do not mind subsidising the less wealthy areas. The cultural and emotional ties between different EU countries are not so strong.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.com