Alternative to the ECB

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.

He’s rightly exercised about Greece and its implications for the eurozone. The positions of the ECB and the anti-inflationary approach of the ECB come in for particular criticism. He writes,

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 “suitable for Germany according to hard money fanatics.” That’s probably bad for Germany, but there’s certainly no reason to think it’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.

This entry was posted in A Fistful Of Euros, Economics: Currencies, France, Germany, History, Political issues by Doug Merrill. Bookmark the permalink.

About Doug Merrill

Freelance journalist based in Tbilisi, following stints in Atlanta, Budapest, Munich, Warsaw and Washington. Worked for a German think tank, discovered it was incompatible with repaying US student loans. Spent two years in financial markets. Bicycled from Vilnius to Tallinn. Climbed highest mountains in two Alpine countries (the easy ones, though). American center-left, with strong yellow dog tendencies. Arrived in the Caucasus two weeks before its latest war.

9 thoughts on “Alternative to the ECB

  1. If you look at Spain you’d have to come to the conclusion that the ECB was much too _tolerant_ of inflation, not too strict.

  2. I think the problem – ECB or Bundesbank – is wrong.

    Why have a central bank in the first place?

  3. If there weren´t a central bank, its functions would be performed by big private banks, without any type of control…so what is really behind the thesis of “no central bank” is the privatisation of the central banks…but this is an area where there is a clear public interest, so…you know. That is hypocrisy, and tremendous ignorance of their followers.

  4. Anyway, there is not relationship between inflation and preservation of the power of politicians…for that you only need consent and/or force.

  5. As one of the three readers of both, I wonder why Matty Yglesias reckons the ECB’s policy has been bad for Germany. I imagine there are hordes of German manufacturers who are relishing the slide in the Euro’s value. They were globally competitive with a strong Euro; with a soft Euro, they should vanquish all comers.

  6. This is extremely misleading. The unstated presupposition is that countries would maintain a stable exchage rate with Germany. And in fact most European countries were committed to this for some time before the actual introduction of the Euro, which is why the Bundesbank effectively set monetary policy for most of the EU. But if countries leave the Eurozone now, they will not strive for a stable exchange rate vis-a-vis the Euro (and Germany). So they will in fact have the freedom to conduct monetary policies independently again.

  7. “So they will in fact have the freedom to conduct monetary policies independently again.”

    I’ll tell you the secret . They would peg to the Bundesbank sooner or later because they need to get the low rates that Germany gets.
    But having a deficit of “only” 3% is a sacrifice for debt-inflacionists like Yglesias and it appears Doug. They want all power, they want the power to empoverish the people by devaluating money when they see fit specially when their statist economic plans usually fail.

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