Audit the ECB
A week into Donald Trump’s presidential term and there is much talk in the media about the wall he wants to build with Mexico and tax reforms. But also in the media is an indication that Congress will look into reforming the US central bank, the Federal Reserve (Fed). The same should be debated here in Europe, on the role of the European Central Bank (ECB).
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” This statement by American industrialist Henry Ford certainly touches a nerve.
Educating people about money
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The lack of information needs to be rectified, which is why a new EU-wide initiative called “Leergeld.eu” has been set up.
Leergeld.eu is an initiative by the European Conservatives and Reformists (ECR) group in the European Parliament, led by MEP Sander Loones, aiming to educate people about money, especially in relation to the ECB's policies and impact.
This type of debate has been raging for some time already in the US. There as well, the bank bailouts after the financial crisis of 2008 generated a lot of discontent, with Ron Paul’s presidential campaigns further fanning the flames. The monetary experiments of the past few years are drawing evermore criticism, and calls to revamp the Fed’s status and manner of working are growing louder.
An “Audit the Fed” bill was submitted in Washington DC some time ago, but to date this draft law has had insufficient political support and been consistently opposed by the former and current Fed chairpersons, Ben Bernanke and Janet Yellen.
Under the current American president, however, there is some favourable interest in the proposed bill.
Risks turn into disadvantages
In Europe, there are also enough reasons to subject the European Central Bank to an in-depth review. It has been two years since Mario Draghi first announced that the ECB would in effect start printing more money. There is growing criticism of this approach, especially as the negative side-effects of this ultra easy monetary policy are becoming more tangible.
Non-existent returns on savings accounts are the most visible drawback of the ECB’s policy, but there’s a lot more. One bubble after another are forming, for example in government bonds.
Due to the ECB's promise to buy large amounts of bonds, it has dragged private investors into a debt quagmire. Additionally, the ECB already holds 33 percent of the debt issued by certain countries, for example Portugal.
Compounding on this issue is the risk of an overvalued housing market, with the European Systemic Risk Board (ESRB) already issuing warnings about a real estate bubble in Belgium, the Netherlands and Finland, among others.
Young members of the middle class are having to take on huge amounts of debt in order to buy a house while people at the end of their careers are no longer certain about the kind of pension they can expect to receive.
In the Netherlands, for example, the various pension funds have had to reduce pay-outs on several occasions. Other problems, which are just as serious, are lurking beneath the surface.
In fact, it would appear that after the dotcom bubble at the end of the 1990s, or the various housing bubbles in the 2000s, the central bankers have made the problem worse. The upshot is that the public have managed to endure the disadvantages of the ECB policy, but not enjoying the oft-promised advantages.
No momentum for reform has come about, and the ultra easy monetary policy has not created any sustained growth that was intended.
Ordinary people are basically unable to understand all this information. Even experts and specialised journalists are at a loss.
Because the traditional economic thought patterns have been jettisoned, they have no choice but to try and decipher what our monetary mandarins actually think by studying their choice of vocabulary, facial expressions and, in some cases, even the colour of their tie.
We all deserve better, and it is only normal that we know what is happening with our money. There must be greater transparency in the decision-making process of the European Central Bank, and it must be clear what effect monetary policy is having on banks, pension funds and the economy.
A strong signal to Frankfurt is needed.
Enough playing with our money. Enough hiding in the monetary darkness. Audit the ECB and let’s get our money flowing again.
Sander Loones is a member of the European Conservatives and Reformists group and vice-president of the economic and monetary affairs committee in the European Parliament. He leads the Leergeld.eu initiative.