Monetary developments in the Eurozone – the endogenous view
Eurozone monetary statistics are, despite the monetarist leanings of many board members, deeply endogenous. The ECB monetary statistics really are of scientific quality. They show that money growth is a consequence of human actions and market exchange, not a cause. People and companies borrow and this borrowing creates loans as well as new deposits. Using this perspective (which the ECB itself only does to a very limited extent) to look at Eurozone money growth (graph) yields interesting insights:
Graph 1. Money growth in the Eurozone, Germany, ireland and Greece (% year on year increase, sources: Central Bank of Greece, ECB, Central Bank of Ireland, Bundesbank)
A. High money growth in Ireland around 2006 was caused by toxic ‘Ponzi financing’ of real estate projects – using an ‘endogenous money’ perspective could have enabled the ECB to notice this and to take timely action (like promoting a land tax).
B. High money growth in Germany at this very moment is, looking at the detailed data for Germany, not so much caused by reckless lending but by a large change in the post ‘sonstige Aktivpositionen’ (other activa items) as well as a shift from savings to overnight deposits. Southern European people shifting their money to German accounts? Anyway: no signs of toxic ‘Ponzi financing’ of a real estate bubble (and too little of healthy, credit financed investments).
C. Monetary financing of the housing bubbles led, in the aggregate Eurozone, to even higher money growth than the re-unification of Germany
D. Monetary financing of the housing bubbles led, in Ireland, to even higher money growth than monetary financing of government deficits in Greece after 1980
E. Which, together, shows that the ECB exclusive and rather dogmatic Eurozone perspective on money growth and the neglect of national data is flawed and, as far as I’m concerned, contributed and still contributes to the present mess.
By the way – the ‘national contributions’ to Eurozone money growth should be redefined from ‘lending by national banks’ to ‘borrowing by national residents’ and ‘the national contributions to Eurozone debt growth’.