Neal Irwin explains that the European Central Bank could take decisive action to avert disaster in Europe but almost certainly won’t for no real reason:
Analysts had hoped the ECB might use its essentially limitless ability to create money to stanch the crisis, though doing so could hurt the long-term credibility of the central bank as an inflation fighter that does not yield to politics.
Dean Baker wonders what about the ECB’s reputation as a competent central bank, arguing:
It is not clear how rescuing Europe’s economy implies that the ECB had decided to “yield to politics.” This is an invention by the Washington Post. Central banks are supposed to intervene to help economies in this sort of crisis, that is why governments create them. If the ECB fails to act to stem this crisis, when it obviously has the power, its reputation and Europe’s economy will suffer serious consequences.
I wish it were true that Irwin had just invented this. But to the best of my knowledge this is really how European monetary policy officials think. You or I or Dean Baker or someone who’s not a sociopath might say the point of central bank independence is to allow to him pursue technocratically sound monetary policy that advances the long-term interests of the people of Europe. But that’s not necessarily how they see things in Frankfurt. The madness of the European Central Bank is, in my view, the most underexplored and underappreciated aspect of the crisis thus far. The Eurozone, not the United States, is the world’s largest economy and the Eurozone, not China, is America’s largest trade partner.
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