By Eduardo Garzon
On Tuesday 12 February 2013, the president of the European Central Bank (ECB), Mario Draghi, stood before Spain’s parliament to explain the actions of the ECB in the Eurozone. Leaving aside the shameful and undemocratic fact of a closed hearing (and how absurd it was, because then the speech was published on the Internet), it is necessary to denounce the lies, half truths and fallacies Draghi deployed during his sermon. Here’s the most abhorrent and shameful of them:
1. The ECB’s measures have eased credit restrictions on banks and other financial institutions that choose to renew or expand their lending to businesses and households, thus removing an obstacle to growth.
Absolutely false. The ECB has not given money to the banks to lend to businesses and families, but to plug their gaping financial holes. In fact, today Spanish banks are providing less credit than at any time in recent history. Moreover, Spain is at the back of the global queue in terms of access to credit, according to the World Economic Forum. How can Mr. Draghi get away with lying so blatantly? Why do journalists repeat his speech without questioning the veracity of his words?
2. The ECB’s first key achievement has been to reduce our official interest rate to 0.75%, a record in virtually all countries of the euro area.
He forgets to mention that the official interest rate in the U.S. is much lower, at 0.25%, that of Japan is at 0.1%, or that the UK is at 0.5% , among others.
3. Europe’s difficulties arise from the large imbalances in highly indebted sectors and the failure to improve the public finances in some euro area countries.
That is, Draghi blames the crisis in Europe on sectors that have borrowed too much, and governments that have spent more than they have earned.
The sectors that have become most indebted in Spain are the super rich and big business, blinded by a desire for profits obtained through exorbitant speculation using financial leverage. In contrast, most of the less wealthy families who borrowed did so to buy their (first) home (which is a right enshrined in our Constitution) and this because of low wages and high housing prices. And yet, the very wealthy and big business are not facing cuts recommended so forcefully by the ECB, but the opposite: Spanish millionaires have been swelling their fortunes during the crisis (in some cases by 50%), and the profits of the 35 largest companies listed on the Spanish Stock Exchange continue to grow (ten of them in 2012 broke new records). These are not the ones paying the price, however. Instead it is the majority of the population, who barely benefited from the housing bubble.
In addition, these high levels of debt were allowed and facilitated by the structure and rules of the European Union, of which the ECB is the main institution responsible, being the monetary authority of the Eurozone. If debt is to blame and debt is the responsibility of the ECB, Draghi then should blame his own institution for the European crisis, and not indebted sectors.
Furthermore, Draghi blames poor management of public finances. Well, Spain’s budgetary management was tip top, having enjoyed a surplus of 1.9% of GDP in 2007 (the year the crisis started). And the average public deficits of European countries was only -0.7% at the time. Faced with this data, how is it possible that the ECB president can point the finger at public finances? Clearly, this highly accomplished economist must be lying. The sad thing is that he is allowed to.
4. The countries of the euro area have reduced their budget deficits by almost half…. Excluding interest payments, the primary deficit of the whole euro area was practically zero.
What Draghi is saying is that, on average, European Union countries have deficits simply because they are paying interest on borrowings from the past. If you do not pay interest, you would not deficit. And if you pay a lot less interest, you would hardly have a deficit. What Draghi does not say is that those interest payments would be much smaller if the institution of which he is president, the ECB, funded states rather than private banks, who then finance these States (thus earning a profit ). That is, the ECB could have allowed European countries to have a much lower deficit (and lower risk premium, and less need to cut spending and raise taxes), but it never wanted to do this because it prefers to give money to private banks to heal their wounds.
5. The current account deficit in Spain has dropped considerably, from nearly 10% of GDP in 2008 to about 1% in 2012.
True, but Draghi intentionally forgets to explain why this happened. The current account balance is the difference of what Spain sells abroad and what it buys abroad. During the housing bubble Spain saw a growing deficit, because it was buying more goods and services abroad than it was selling. Today that gap is narrowing, but not because Spain is selling much more abroad, but because now it buys much less due to the fall in private consumption of Spanish households (in 2009 imports fell by 27%). That is, the trade deficit is shrinking because we are now much poorer and buy less things to other countries.
6. The share of exports in GDP increased by about 10 percentage points in Spain.
The share of exports in GDP (X / Y) depends on the evolution of exports (X) but also depends on the size of GDP (Y). That is, the indicator may increase because exports increase or because GDP decreases, or both. In the Spanish case, although it is true that exports have grown, the fall in GDP has been yet more pronounced, so this indicator has improved in large part thanks to the fact that Spanish GDP is much lower now than before, and not because exports are increasing.
7. The ECB is actively contributing to reduced macroeconomic risk: firmly stabilizing inflation expectations.
That is precisely the problem: the ECB’s obsession with controlling inflation is (consciously) strangling the European economy. In the U.S. the [Fed's] injection of capital has been mammoth, as too has been the cut in interest rates, and inflation has not increased at all. In times of recession like today, the increase in the money supply does not cause inflation.
8. After outlining our performance, I will listen with great interest to your views on the European economy, the ECB’s policies and the future design of our economic and monetary union.
Even in this lie, because when the [radical left] United Left deputy Alberto Garzón outlined his parliamentary group’s vision on the issue, an annoyed Draghi simply replied with, “What is the question? And he said nothing more. Thus he showed he did not care to listen to anyone’s opinion. He had gone to Congress to lecture, not to debate.
Translation/edit by Revolting Europe