In the last decade, the European Central Bank (ECB) has introduced subzero interest rates, printed hundreds of billions of euros, and destroyed the currency. What does the ECB have to show for it? An anemic regional economy, countries on the brink of disaster, and millions of residents who want off the sinking ship. What -- are you ungrateful or something? Don’t you know that without your masters in Frankfurt and Brussels you would be living in a ditch somewhere? Christine Lagarde, the new head of the ECB, wants Europeans to extend their hands and beg, “Please, can I have some more?”
La Garde!
Christine Lagarde
Lagarde’s first official speech as the new central bank chief was short on substance and filled with obsequious platitudes. Extending an olive branch of good faith between the ECB and eurozone states, Lagarde celebrated her critics, espousing the need for regional unity. To unite Europe, Lagarde claimed, it is necessary to ignore one major subject: monetary policy.
If there were one speech to pay attention to, it was her oration just days before taking over at the ECB. This address provided tremendous insight into what to anticipate from the Lagarde regime and validated what critics suspected all along: Lagarde will likely be worse than her predecessor, Mario Draghi.
Her speech slammed countries that have chosen to live within their means, something she contends is threatening European harmony. Lagarde called out Germany and the Netherlands for recording budget surpluses of 2% and 1.5%, respectively. She griped that they have chosen to live within their means instead of wasting precious resources on education and infrastructure. The German leadership has complained regularly that the ECB’s negative rates and quantitative easing have hurt savers, exacerbating the tense relations between the two sides.
The best part of her prepared remarks came when she defended subzero rates and slammed savers. Lagarde’s attitude toward Europeans was one of disappointment, asserting that everyone should be appreciative for the ECB’s wisdom.
“Would we not be in a situation today with much higher unemployment and a far lower growth rate, and isn’t it true that ultimately we have done the right thing to act in favor of jobs and growth rather than the protection of savers?
“We should be happier to have a job than to have our savings protected. I think that it is in this spirit that monetary policy has been decided by my predecessors and I think they made quite a beneficial choice.”
There are two things wrong with this statement. The first is that growth has been anemic as the gross domestic product (GDP) has barely budged 2%. The second is that these views of how the economy functions are quite perverse because it is savings and investments that contribute to job creation, not a printing press.
Rather than conceding that it might have been the unconventional efforts of the ECB that have contributed to a lackluster performance in the aftermath of the recession, Lagarde believes that savers and fiscally responsible E.U. members are to blame. If only they had spent more…
A Crystal Ball
Everything we could have possibly imagined from a Lagarde administration will likely be realized. She is Draghi on steroids, making him appear to be a stalwart of the Austrian School of Economics. Europe can prepare for a winter of negative rates, money-printing, greater stimulus, and every other policy tool conceived in Lagarde’s mind until the economy revs up. A stubborn Lagarde will repeat the measures employed over the last decade, leading to a likelihood of a currency crisis. The only benefit from this expected tragedy is that it enhances the Nexit, Frexit, Grexit, and all the other exit campaigns.
Speak of the Devil
Now that Draghi has left the building, Lagarde occupies his seat. Everyone in the eurozone will quickly empathize with the adage, “Better the devil you know than the devil you don't.” But if Oscar Wilde is correct, and “we are each our own devil, and we make this world our hell,” then we do it to ourselves by allowing the central bankers to rule over us. Indeed, when there is no more room in hell, the central bankers shall roam the earth.
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