"To some people, the European Central Bank (E.C.B. ) seems like a fire department that is letting the house burn down to teach the children not to play with matches." So wrote Jack Ewing in the New York Times last week. He went on:
"The E.C.B. has a fire hose -- its ability to print money. But the bank is refusing to train it on the euro zone's debt crisis.
"The flames climbed higher Friday after the Italian Treasury had to pay an interest rate of 6.5 percent on a new issue of six-month bills . . . the highest interest rate Italy has had to pay to sell such debt since August 1997 . . . .
"But there is no sign the E.C.B. plans a major response, like buying large quantities of the country's bonds to bring down its borrowing costs."
Why not? According to the November 28th Wall Street Journal, "The ECB has long worried that buying government bonds in big enough amounts to bring down countries' borrowing costs would make it easier for national politicians to delay the budget austerity and economic overhauls that are needed."
As with the manufactured debt ceiling crisis in the United States, the E.C.B. is withholding relief in order to extort austerity measures from member governments--and the threat seems to be working. The same authors write:
"Euro-zone leaders are negotiating a potentially groundbreaking fiscal pact . . . [that] would make budget discipline legally binding and enforceable by European authorities. . . . European officials hope a new agreement, which would aim to shrink the excessive public debt that helped spark the crisis, would persuade the European Central Bank to undertake more drastic action to reverse the recent selloff in euro-zone debt markets."
The Eurozone appears to be in the process of being "structurally readjusted" -- the same process imposed earlier by the IMF on Third World countries. S tructural demands routinely include harsh austerity measures, government cutbacks, privatization, and the disempowerment of national central banks, so that there is no national entity capable of creating and controlling the money supply on behalf of the people. The latter result has officially been achieved in the Eurozone, which is now dependent on the E.C.B. as the sole lender of last resort and printer of new euros.
The E.C.B. Serves Banks, Not Governments
The legal justification for the E.C.B.'s inaction in the sovereign debt crisis is Article 123 of the Lisbon Treaty, signed by EU members in 2007. As Jens Eidmann, President of the Bundesbank and a member of the E.C.B. Governing Council, stated in a November 14 interview :
"The eurosystem is a lender of last resort for solvent but illiquid banks. It must not be a lender of last resort for sovereigns because this would violate Article 123 of the EU treaty."
The language of Article 123 is rather obscure, but basically it says that the European central bank is the lender of last resort for banks, not for governments. It provides:
"1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as "national central banks') in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
"2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions."
Banks can borrow from the E.C.B. at 1.25%, the minimum rate available for banks. Member governments, on the other hand, must put themselves at the mercy of the markets, which can squeeze them for "whatever the market will bear"--in Italy's case, 6.5%.