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Waving the White Flag
May 12, 2012
Waving the White Flag
Viva Los Rescates Financieros de los Bancos
Contagion is Real
It Doesn’t End With Spain
New York, Atlanta, and Philadelphia
A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools.
- Douglas Adams, The Hitchhiker's Guide to the Galaxy
For quite some time in this letter I have been making the case that for the eurozone to survive, the European Central Bank would have to print more money than any of us can now imagine. That the sentiment among European leaders was that they were prepared for such a move was clear – except for Germany, which is haunted by fears of a return to the days of the Weimar Republic and hyperinflation.
When Germany agreed to a fixed monetary union and a European Central Bank, it was with the clear understanding that it would be run along the lines of the German central bank, the Bundesbank. The members of the Bundesbank and the German members of the ECB were most outspoken about the need for a conservative monetary policy that would keep a clamp on inflation.
However, as I have previously noted, the Bundesbank was a toothless tiger. Germany has two votes out of 23 on the ECB, and the loud drumbeat from most of Europe, which is experiencing the difficulty of austerity accompanied by too much debt, is for a far more accommodating ECB.
The simple fact is that Mario Draghi, the Italian president of the ECB, created €1 trillion euros to help fund European banks, which promptly turned around and bought their respective countrys' sovereign...
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