How Shall Pundits Read the European Central Bank ‘Smoke Signs?’

Will the new European Central Bank policy of forcing the banks to use money lent to them by ECB in sensible growth and jobs promotion ways work?


The author at Frankfurt looking at the ECB Sky Tower.

An awkward message popped up on my mobile phone today: Instead of the usual airplane or ferry delay announcements it was a press release from the European Central Bank declaring a smoke emission from its prospective new headquarters in Frankfurt A.M..

One could wonder whether the ECB was trying to emulate the Vatican proclaiming the nominations as presidents of the two main contenders of the recent European elections – one for the Parliament the other for the Commission – but no, reading the press release to the end it was just meant to announce exercises preparing the ECB’s final move to the newly built “Sky Tower.”

This should happen still in 2014, we could read in the press release, actually – I thought while reading it – some years and many hundred million euros over the forecasts.

Otherwise, the European Council rather than the ECB brokered the political agreement that opened the way for the nomination of the new presidents.

The text of the deal, written into the June Council Summit conclusions in pure Euro-speak – a complex system of communication where embroilment is meant to allow only initiated people to understand the heart of the message – does announce a rather bleak scenario for those who hoped for reform in Europe and most in particular in the Euro.

“Given the persistently high debt and unemployment levels and the low nominal GDP growth, as well as the challenges of an aging society and of supporting job-creation, particularly for the young, fiscal consolidation must continue in a growth-friendly and differentiated manner.”

According to Mediapart (6.28.2014) this compromised text was found by the sherpas at three o’clock in the morning and Franco-German pressure forced Italian Prime Minister Matteo Renzi to swallow it in the morning.

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Renzi lost therefore this crucial debate, and the European leaders decided ostensibly to ignore the all too obvious failure of their austerity policy and the demand for change of the European electorate.

A next round of discussions – to be held at the ECOFIN the 16th and 17th of July – shall decide on the name of the Commissioner replacing Olli Rehn, but the political line is already decided: business as usual!

And so the game turns again to the European Central Bank, the only European political body that seems able to avoid Euro-sclerosis responding to economic and political realities and adapt its policies in conformity.

Will the new ECB policy of forcing the banks to use money lent to them by ECB in sensible growth and jobs promotion ways work? Will this policy get us out of the deflationary spiral? In other words, how shall the pundits read the ECB smoke signs?

Given the incapacity shown up to now by the ECB to control the building of its own headquarters – not to mention their inability to control banks that the European Court of Auditors just denounced – I am afraid we should expect no good news either from them.

Paulo Casaca is a Portuguese politician and was a Member of the European Parliament. Read other articles by Paulo.