Jorg Asmussen, ECB-politician, is wrong about Ireland

“Der Rest der Welt wächst und wächst und produziert – und wir streiten uns um des Kaisers Bart” Helmut Schmidt

According to Jorg Asmussen, ECB-politician, Greece should follow the Irish example. But he should know better, even looking at it from the austerity-perspective. Ireland is in tatters:

* Irish unemployment just hit a historical high, despite mass emigration.
* The Irish government deficit was 13% of GDP last year, against ‘only’ 9% for Greece (Eurostat). Yes, a lot of the Irish money is used to pay for bank welfare and therewith not counted as contributing to the ‘real’deficit by the ECB. But it does add to Irish debt.
* Greek net exports are growing much faster than Irish net exports, not only because of a contraction of imports but also because of high growth of gross exports. This is a continuation of a 2011 trend.
* Average Greek wages have fallen much more and much faster than in Irish wages.

It’s however also possible to look at these events from a real life perspective, which shows that the ECB failed to act when spreads between the interest on government debts of Eurozone countries were much to low, before 2008. The ECB supposed that ‘the market’ always knows best. But alas, the market is not our mother… Now we know that markets were mistaken, before 2008. And now we, including the ECB, also know that the present ultra high level of spreads also does not reflect economic fundamentals but is caused by a kind of ‘bank run’ on entire countries (reinforced by the fateful decision to impose PSI’s, i.e. by giving ‘rescue’ loans seniority).

There is another option. The ECB never took inflation or current account or interest differences between countries serious. Now they do – but in the wrong way. The ECB uses them not to foster growth but to impose ‘discipline’ – and it even reinforces the differences. Again, look at the PSI’s, which were kind of instigated by the ECB Greek bond swap (the ECB swapped its Greek bonds for identical bonds with other serial numbers which made them fall outside the ‘haircut’). But ‘discipline’ is not the problem. Greek people work long hours, much more so than Germans. And debts are not the main problem for Greece. Bonds can easily be swapped for identical bonds with other numbers when it comes to maturity and rates. Unemployment rates of over 10, 15 or even 20% in an increasing number of countries are the problem. And lack of confidence in the monetary system is a problem. The ECB can help to solve this. It can change its policies and start to target not just the average interest rate but also a maximum spread. Unlike ‘imposing discipline’, this clearly is within the ‘mandate’ of the bank! It of course means that it will have to buy bonds, to restore the confidence of ‘the markets’. And to speak out against PSI’s, to increase the confidence of the markets. And to speak out against banksters, again and again, to increase the confidence of the markets. But hey, who destroyed confidence in the first place, by neglecting differences between countries, adopting completely outdated policies and refusing to act when mortgage credit went through the roof and housing bubbles wrecked entire countries?

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