A fire breaks out. Luckily the firemen arrive. But instead of watering down the burning house, they pour more and more water into a swimming pool which is already full.
In June 2016, the European Central Bank is launching yet another plan to try to revive the economy of the old continent. Since years of “printing money” through quantitative easing have not produced the desired results, here is the next step: to buy with this money not only government bonds but also private corporate bonds.
The Corporate Europe Observatory (CEO), the organization that has been studying and denouncing for years the impact of lobbies on the decisions of Europe, looked into which companies and sectors have benefited from such purchases. The research just published leaves no room for doubt: “The result is disturbing, unless you think that oil, luxury cars, champagne and gambling are the best sectors to invest public money.”
Ultimately, the intervention of the ECB is a crutch to support some of the largest corporations. Bonds are a form of financing, and their price follows the law of supply and demand: If there are many who want the bonds of a particular company, the latter will offer lower interest rates. If, however, almost nobody wants to buy them, the company will have to increase the interest rate to get the funds it needs. If the ECB intervenes by purchasing certain bonds. That entity therefore gains an advantage over competitors.
We are not talking about small change. The ECB invested €46 billion by late November 2016, and is aiming to hit €125 billion by September 2017.
From Shell to Repsol, from Volkswagen to BMW, we find some of the largest companies in oil and automobiles. Even if we forget the scandal of the investment in Volkswagen only a few months ago, at a time when Europe is flaunting its “green” policy and its objectives on climate change, are we confident that supporting these sectors with tens of billions is the best strategy to fulfill the commitments? And then multinationals of the caliber of Nestle, Coca Cola, Unilever, Novartis, Vivendi, Veolia, Danone, Renault and so on and so forth.
And in Italy? Eni, Enel, Terna, Hera, Snam, Acea, Assicurazioni Generali, Exor (the Agnelli company that controls Fiat and Ferrari), A2A, Telecom Italia, Autostrade per l’Italia and a few others. It does not look like a list of companies that struggle in gaining access to credit.
Exactly the opposite: They are probably the ones that regardless of ECB’s support (it coordinates the selection of securities with the national central banks, and also with the Bank of Italy) can already borrow on the best terms.
For the umpteenth time, the European rules and procedures are tailored for the larger industrial and financial groups, at the expense of small businesses and innovative sectors. In Italy the limited credit supply — or credit crunch — has heavily hit small businesses, households and craftsmen for years.
Just like quantitative easing has inflated the financial markets without reviving the economy, so the new plan of the ECB seems ineffective, if not counterproductive. Regardless if we are looking at the private or public finances, we are witnessing a huge surplus of money for the strongest, while there are no resources for a real revival of economy, to create employment and meet the enormous needs. The European house is burning, but the firemen throw water in an already full swimming pool, letting the fire flare up.
If, as the textbooks say, the main task of finance, and its whole reason of existence, is the “optimal allocation” of resources in the real economy, we are talking about the most macroscopic failure of the modern era. Not only it causes a repetitive cycle of crisis, it increases inequality and aims to compel the entire society to its diktats, but at the height of the paradox, this financial system simply does not work and does not do the only thing it should do. In the face of the “efficient markets,” the true pillar where the economic theories stand on, the same ones that have dominated and still dominate the European institutions for the last decades.
What would have happened with different economic and monetary policies? What if ECB’s hundreds of billions that today swell the financial markets and subsidize multinationals, had instead been allocated to a public investment plan, research, employment, and the ecological conversion of the economy? Technically, there would be no problem to do so: instead of buying Coca Cola or Shell bonds, the ECB buys bonds from the European Investment Bank (EIB), a public bank to which the European institutions might give a clear mandate to use resources for the goals that Europe itself has adopted in relation to social inclusion, reducing inequalities and climate change.
Doing so or not is therefore not a matter of European treaties — assuming that for some mysterious reason they cannot be changed — it is a matter of political will.
In spite of current disaster’s, Europe’s will remains fixated on a liberal vision and failed economic and monetary policies. One cannot then be surprised by the growth of xenophobic and populist right and the real risk that the fire will lead to the disintegration of the E.U. itself.
It’s amazing to watch their stubbornness, bordering on fanaticism, in which despite disaster upon disaster, they never call into question their basic choices.
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