Since the Great Recession more than a decade ago, the European Central Bank’s (ECB) mantra has been to “do whatever it takes.” After throwing everything at the wall to achieve even a modicum of economic growth, the ECB failed at its objective. The institution is temporarily abandoning its mandate by pandering to the woke crowd and searching for a progressive opportunity in the midst of a crisis. Embracing Brussels' globalist, central planning, and social justice mindset, the ECB hammer has seemingly found its next leftist nail to beat into the eurozone. Christine Lagarde’s latest window dressing in monetary policy is to combat climate change by propping up a market that has cooled down over the last 12 months: green bonds. Like other central banks, the ECB has ventured from setting interest rates and controlling the money supply to becoming the purveyors of infinite wisdom.
Green Bonds: A Primer
Also referred to as climate bonds, a green bond is a fixed-income investment vehicle designed to generate money to fund climate or environmental projects. This includes everything from sustainable agriculture to energy efficiency to pollution prevention. Governments have attempted to sweeten the pot with diverse tax incentives, primarily exemptions and credits. The World Bank was the first issuer of an official green bond in 2009. Since then, approximately $1 trillion in green bonds have been issued by governments and corporations worldwide.
ECB Invests in Mother Nature
When the Governing Council convenes in Frankfurt later this month, policymakers will try to transform the ECB into a climate change crusader. According to a Financial Times survey of economists, it will accomplish this feat by reducing its purchases of bonds issued by fossil fuel companies and escalating its acquisitions of green bonds.
Another idea being floated around is adopting "carbon targeting." This would consist of limiting the weight of high-carbon-emitting issuers in the ECB's portfolio and offering incentives for these same entities to slash their carbon footprint. Some reports also suggest that it would emulate the Federal Reserve by allowing inflation to run higher for longer before intervening and raising interest rates.
The ECB's quantitative easing (QE) will ditch the "market neutrality" moniker in favor of more environmentally friendly IOUs. This should not come as a surprise since Lagarde had signaled her desire to make the ECB a pioneer in the fight against climate change when she first signed up for the job. It is also widely anticipated that tackling global warming will be a significant component of the group's strategic review of its remit and tools, scheduled for completion in the second half of this year.
Lagarde and her cohorts are likely caving to the demands of environmental campaigners. After revving up its QE4ever blitzkrieg, the ECB's $300 billion corporate bond purchases have been concentrated in the oil and gas, utility, and airline industries because they issue more bonds than others. And this has perturbed the tree huggers because they want a bigger slice of the ECB pie.
Could the ECB experience any dissent? Early reports indicate that Jens Weidmann, the head of Germany’s central bank, might make a fuss following a December 2020 op-ed that argued, "it is not up to us to correct market distortions and political actions or omissions." Still, the one-person campaign might not be enough for the ECB to initiate a compromise.
A Green Bailout?
The green bond market has cooled down considerably over the last year, essentially flatlining in 2020. Some market analysts had observed that there may have been some consolidation in what many have viewed is a bubble. Jared Dillian, an investment strategist at Mauldin Economics, wrote in Bloomberg Opinion in October:
"ESG (Environmental, Social, and Corporate Governance) is nothing but a passing investment fad, not unlike smart beta, the BRICs, structured products or any of the myriad market bubbles over the last 25 years, small and large."
Last summer, the European Union announced that it would be borrowing €750 billion from capital markets, and about one-third will represent green bond issuance. Early forecasts point to a less-than-enthusiastic response in the overall market. The ECB would inevitably come to the E.U.'s rescue and buy a large chunk of these green bonds, spurring artificial demand in the financial arena. The central bank would give the green bond market a lifeline. Or, put another way, a bailout.
Despite all this intervention and money-printing, would this make a dent in climate change? Hardly.
In December, the ECB published a study that discovered buying only green bonds would produce a minuscule and temporary impact on polluting emissions. According to the researchers, it could trigger "a slightly higher rise in pollution."
"The bottom line of our study is that a temporary Green QE is able to affect detrimental emissions in the brown sector, but it has small effects on the stock of pollution. The main reason is that climate change and pollution are structural problems, while a temporary Green QE ... plays a role along the business-cycle."
The ECB plans to save the world by buying green bonds that will do nothing to rescue the planet. It makes sense only in the upside-down world of central banking.
Winners and Losers
Ultimately, the central planning schemers will be picking winners and losers, substituting brown for green. They will attempt to justify their actions by alluding to an existential threat that we face. This reasoning – if you can label it that – might have succeeded a decade ago. But many sensible folks have already seen through the dark veil and realized the globalists' pernicious intent. It is terrible policy, and it is bad economics. In the end, Lagarde might be one of the most dangerous bureaucrats on the planet, with her loathing of savers, her disapproval of budget surpluses, her endorsement of a digital currency, and now bringing her wokeness to real life.
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Read more from Andrew Moran.
