>> GROUP: Shadow ECB Council / EZB-Schattenrat  Prof. Richard Werner

Prof. Richard Werner: The ECB's monetary policy has had the effect of prolonging the recession in the periphery countries, while causing major long-term economic problems in the central countries. The policy should be reversed immediately.

Specifically, the policy to push down the long end of the yield curve and impose ultra-low and negative short-term interest rates has damaged the majority of banks in the eurozone, which are the thousands of small-scale, local community banks that mainly engage in productive lending to SMEs. A flat yield curve and negative interest rates mean that these banks are being driven out of business. At the same time, the ECB's bank regulation policies, together with the EU bank regulation, have made small banking operations far less viable. Essentially, a massive regulatory burden has been imposed on the healthy and helpful community banks, while the big banks are effectively given a regulatory advantage. Thus the ECB has caused the merger boom among small banks that has sharply reduced the number of banks in the last 5 years in the eurozone. In other words, the ECB has succeeded in its policy, declared by Mario Draghi in 2016, that "there are too many banks in the eurozone" and it has been reducing the number of banks by several hundred. Together with the ECB's unnecessary asset purchases, which have pushed down the long end of the yield curve and have benefitted mainly the large banks focusing on asset speculation, the ECB's policy has resulted in a transformation of the eurozone banking sector: It is getting far more concentrated, with fewer and much larger banks, compounding the too-big-to-fail problem.

All of this is an obstacle to stable, sustainable, non-inflationary growth without crises, since for this bank credit growth for GDP transactions (not asset transactions) is required, which the small community banks mainly engage in, but not the too-big-to-fail asset speculation banks.

The sooner the ECB reverses its failed policy, the better for the eurozone and the world. It should start now by raising short-term interest rates (since rates are positively correlated with economic growth) and switching to selling its assets. To prevent sovereign bond market problems, it should encourage the finance ministries in the eurozone to stop issuing government bonds and instead funding their public sector borrowing requirement by entering into standard (non-tradable) loan contracts with all of the banks (the majority small banks) in their own countries. The latter policy is called Enhanced Debt Management and explained in the attached study pubilshed in a leading refereed finance journal (http://www.sciencedirect.com/science/article/pii/S0261560614001132).
>> Kontakt    >> Webseite