Not only in Germany: The ECB now wants export-driven growth for whole Europe!

By: Andrea Terzi

One claimed objective of the single currency area in Europe is (or should I say was?) to create a large single market for producers. But now the ECB is pressing national governments to gear their policies to enhance competitiveness so that they can “count on external demand” and increase their net exports! Mario Draghi, President of the ECB, and a key figure in the team now managing the European crisis, made this statement while responding to an Italian journalist, in the Q&A session of the ECB press conference of 8 December 2011.

Earlier, Draghi had described the ECB’s view of the 3-pillar recipe to end the euro crisis as follows:

First, European nations need budget policies geared to stability, growth, and competition (Note: he first said “stability, growth, and jobs”, but he immediately changed it into “stability, growth, and competition. And thus, jobs”).

Second, countries need common fiscal rules (the so-called “fiscal compact” of the euro zone approved this past week). The first two pillars are aimed at ending what Draghi calls a “confidence problem” with euro nations’ debt. So, again, for the ECB, it is all about “fiscal discipline”.

Third, the euro needs a “stabilization mechanism” led by the EFSF, with the ECB acting as its agent (and no involvement of the ECB’s balance sheet). In this respect, Draghi stressed that the ECB does not discuss its mandate: it simply complies with it.

Then, Alessandro Merli (from Il Sole24ore) asked Draghi if he wasn’t worried that budgets cuts in Europe would further intensify the recession.

Draghi’s answer was quite indicative of the conceptual framework of the ECB and of the economic scenario that the ECB expects will unfold as Europe continues with fiscal adjustments.

The ECB President admitted that budgets cuts and tax increases are contractionary—“in the short term” he added—but there are two ways to lessen their negative impact on growth:

One is the confidence-enhancing effect that will follow the new “fiscal compact”.

Now, does Draghi really believe that deficit and debt ratios will look any “better” after implementing the deficit cuts (which will, as he admits, deepen the recession in Europe)? And even assuming modest “improvements” of debt ratios, will this be enough to see markets suddenly rush for Italian and Spanish debt? Does he have a good explanation of why markets love debt issued by a non-euro country like the UK, whose deficit-gdp ratio is higher than Italy and Spain?

The other way of easing the impact of fiscal restrictions is, for Draghi, that “if you enhance the competitiveness, you can actually count on your external demand, on your net exports” (ECB press conference from 35’40” to 36’20”).

Does he really intend to make European growth depending on (or should I say at the mercy of) high levels of aggregate demand abroad? Does he not see that this means that Europeans will net export their standard of living by giving away goods and services in exchange for credits abroad? It is of course a matter of accounting logic that nations that net export will find it easier to keep their fiscal deficit lower, so perhaps Draghi is telling us that the myth of a balanced budget should rule all European policies, and Europe will do anything it takes to achieve “fiscal discipline”? Even if this means stagnation?

Or perhaps Draghi is a true genius, and he is subliminally trying to show us how absurd are the consequences of the current mandate of the ECB and of fiscal rules?

8 thoughts on “Not only in Germany: The ECB now wants export-driven growth for whole Europe!

  1. Pingback: Not only in Germany: The ECB now wants export-driven growth for whole Europe! | New Economic PerspectivesNew Economic Perspectives

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  3. Hepion

    Eurozone has never had current account surplus or deficit more than about 1% of GDP. In other words, EZ is neither competitive or uncompetitive!

    That is what is most unbelievable in this export chase: it is imbossible! EZ cant export! Why do they keep talking about it???

  4. Carlos Frazão

    Sorry, but
    You are all discussing and proposing solucions not considering the assimetric economies who compose the eurozone. Considering the espected levels off contraction of the more fragile economies with the present policies will provoque a even big gap between the econimies who compose the euro, so the main problem who make the euro probaberly as a failed currency (The assimetric economies with the same currency) will became even biger.

    The soluction will need to cross over a biguer seriouse integration, where more integration policies will be need with the consequente loss of power of all local governements to the CEE structures, only way to stop with the governece of the eurozone as if it is the farme of the riches of the north.

    That solution it’s each day farway of sucess with all the devlopments we are seeing is each day.

    We are assisting to egoism, absence of conscience of the comum interess of europe, elimination of democracy in the southern countries with the instalation of crisis burocrat governements and the consequente increase of distance bettwen peoples and governements, instigation to suspection bettwen the diverse citizens who whore persupose for the politicts increasing hold hates.

    During the last 10 years of commum governence for the CEE, we see:
    – The negociation of the international commerce, made just considering the interests off the northern countries, improtecting compliterly the southern countries economies interests with the only objective of open new markets for the northern countries;
    – The acceptance of china in the international commerce independentely of the existence of slave work on their countrie, imposing to the southern countries the slavery as model to be able to compete with then, once they whore competitors to the industries of the south not of the north;
    – The supports given to the southern countries (the famouse helps to devlopment) whore done to import north countries tecnologies, and not to develop the potencial of the south, money to stop farming and fishing industries, with no strategic plan of devlopment of alternative activities once the main goal of those policies whose support suplly liquidity to the south to buy northern countries products to able to make northen industries stronguer, that whose the real strategie. Mainly we did see the creation circles of false comun interess, because whose necessary to get northern countries industries strong to the big market and real target(Asia countries), so the south whose need (during the last 10 years) as consumer (trough reason to the criation of CEE and euro);

    Now germany unification is completed (for what we all give suport), think is enough strong to conquest china (that is the big mistake) of the north.

    To achieved to china we schould be more united, and not divided, because no one of us will be enough strong alone, nyther Germany united.

    The more probable future it will be a war in near future in europe against the fourth reich, the one who came with the economic slavery instead of the concentration camps, the one who came with the new creation of slave states in substitution of the working camps of hitler.

    Once more germanie will provoque a terrible near future to the human kind, my expectation is, once mores the rest of the world will say no to the egoism, no to small minth people, no to a no values society, and in the end Germany will be dissoved for ever and europe will real reborn in a democracy where governs will interpretated the real interest of our old continente.

    This time I tink geramnie will make alliances with china (they also are used to slavery as a form of work) agianst the resy of europe and US.

    Why humanitie is not able to get conscience of:
    – If no country in the history as win a war in others peoples land, also there will be no force or nation able to whin a war against the need of freedom who made part of the intrisec value of the man kind;

    Just Germanie to always trie to cross the river against the flow, they are real stuburn

  5. Pingback: Draghi believes in the confidence fairy! « The Jefferson Tree

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  7. Zachary Cefaratti

    When Draghi refers to “enhancing competitiveness, ” I can only imagine that he refers to competitiveness in quantitative terms, as the economic environment he describes is certainly not one conducive to enhancing qualitative aspects of European exports in a way that meaningfully increases their international competitiveness. Therefore, any meaningful increase in international competitiveness of exports would necessarily be the result of either a major devaluation of the Euro or a sharp decrease in Euro denominated prices.

    As the latter of these options directly violates the ECB’s mandate, we can more or less exclude it as the means to “enhancing competitiveness” proposed by Draghi. So what’s left? A weaker Euro? This would also put prices under pressure as import prices, namingly commodities such as oil, would rise inversely to the Euro’s decline. To maintain price stability, the ECB would have target an offsetting decline in the domestic prices other inputs, such as labor. All of these conditions seem extremely unfavorable and cannot truly be the path to a recovery.

    Am I missing something? How else can Europe become more competitive internationally while remaining domestically austere and maintaining stable prices? If nothing else, this proposal simply demonstrates the absurdity of the current mandate, as stated.

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