A.K.A. The Bundesbank
Just a quick note for Matthew Yglesias and the three of our readers who read both his blog and ours.
Rather than try to run monetary policy that would be suitable for the median European economy, the European Central Bank has insisted on trying to run monetary policy that would be suitable for Germany. And not even suitable for Germany in general, but â€œsuitable for Germany according to hard money fanatics.â€ Thatâ€™s probably bad for Germany, but thereâ€™s certainly no reason to think itâ€™s appropriate for southern Europe.
The ECB is a Frankfurt-based central bank that is extremely cautious about inflation, in which all members of the eurozone have a seat at the decision-making table. The alternative to the ECB is a Frankfurt-based central bank that is extremely cautious about inflation, in which only German central bankers have a seat at the decision-making table: the Bundesbank.
In the years before the introduction of the euro, only the UK and Sweden managed marginally independent monetary policies, as they do today. (Indeed, German supremacy within European monetary policy dates as far back as 1983 with Mitterrand’s turn away from nationalizations.) Whether Greece weathers this crisis, leaves the euro, or some larger mechanism brings monetary union to an end (unlikely in the extreme), monetary policy will still be made in Frankfurt. The ECB may not be all that good for some eurozone members, but if that is true, then surely a return to the Bundesbank as Europe’s de-facto central bank would be worse.