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Jacques Attali Headshot

What Is the Purpose of the ECB?

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Main pivot, insuring alone the survival of the euro, without any assistance from the EU's executive bodies, the European Central Bank (ECB) is today obliged to do exactly the opposite of what is set out by the Treaties: lending to States in order to finance their debts. And to do this just about the worst way: by providing the banks at almost no cost with the means to lend subsequently to States while they target higher lending margins.

Upon the insistence of the Germans, and by taking on in its Statutes the spirit of a French law of 1973, the ECB, unlike other central banks in mature economies, indeed does not give States, normally, direct access to the printing press, not wanting to encourage them to take on debt.

And yet, since 2008, it has provided banks in a way that is economical with the means to subscribe to government bonds for Eurozone states. Even now as the ECB intends to push banks towards lending on to businesses, in fact, it institutionalizes the monetary financing of public debt, for the greater benefit of the financial sector alone, and at the expense of the taxpayer, who pays for what he could get for free.

Indeed, the ECB has just announced that it will provide loans to banks with a refinancing rate at 0.1 percent for four years, worth €400 billion, in two rounds, in September and December this year, and even more till June 2016. In theory to fuel the economy. But since the ECB allows banks to invest "provisionally" (till September 2016), this manna into sovereign funds, these banks will keep stepping into the breach, thereby providing them with significant profits and increase net worth by stacking these government bonds right there, just at the moment the ECB is asking them to increase them.

That way everybody gains, on the surface: banks making easy profits; and States paying less on their debts. (France has just borrowed at 1.77 percent for 10 years, despite the galloping deficits in the country.) And this mechanism can only be seen as an extension for four years of the previous system, which comes to an end in February 2015, at even a lower cost.

But in reality, this system establishes a total distortion of the European venture, allowing States in the long term to print money to meet borrowing requirements without any reform counterpart, supporting banks in their situation of rent, removing the work that markets have made in differentiating solvent countries from others, without any new funding whatsoever for businesses while increasing the burden on taxpayers.

Markets are not misguided as they have raised to 60 percent the stock market value of banks since two years, even though according to the IMF, their lending to the economy had been constantly shrinking.

Sensing that such criticism will come, the ECB does everything in its power not to make it public. And is no longer certain it would like to go further in this perverted direction. This led the ECB to attempt to drive banks to shape and package their portfolios of SME loans, and to sell them back to it; which in theory would make it possible to increase lending to enterprises. Forgetting, however, that securitization is the principal reason that generated the crisis of 2008.

There is an urgent need, in the ECB's own interest, to get rid of this poisonous gift. And since no one is considering banning banks from subscribing to Treasury bonds, the ECB must be authorized to do the same, within boundaries constitutionally intangible.

And since the printing press does not create real wealth (because otherwise there would no longer be any poor people long ago), the financing of the economy should no longer be left exclusively to the commercial banks, and involve a much more determined action from EIB and the other public investment banks.

It is not very difficult: Members of the European Council just need to show a bit more courage.

j@attali.com