Citizen Euro


If Orson Welles was still among us, could be inspired by what’s happening in Europe to update his legendary Citizen Kane in Citizen Euro.

The film that most of all celebrated the subtle power of the press, the so-called Citizen Kane, today is the best way to celebrate the true “Citizen Kane”: the central banks, and in particular the ECB.

Unlike the press, whose real power is greatly overestimated, that of the European Central Bank is a power that now competes, not to say that stands out, with the classical political theory, i.e. the legislative, executive and judicial. And this is not my opinion. It is Ewald Nowotny’s opinion, Governor of the Austrian Central Bank. “Today – he said – central banks alongside parliaments, governments and judiciary are among the pillars of modern democratic nations

Our banker has dealt with the matter on June 10, as part of the 41st conference of the Austrian central bank that asked a simple question: “A change of role for central banks?”

The theme will seem to many exotic or too technical. But do not be fooled by appearances. The game that central bankers are playing in Europe, if successful, is destined to change the face of the EU as we know it now, marking the final decline of nation-states, and could become a model to be exported in the rest of the world.

Central banks are a recent invention of the story. These institutions have begun to spread around the world in the first half of the twentieth century. Previously existed only in some European countries, but, as noted by the same Nowotny, at that time, “the central banks were very linked with national governments.” In essence they were tools in support of expansionist policies of national states, as indeed it had been since the time of the Bank of England .

At the time there was no talk of some “independence”.

But, as someone says, “central banks are the daughters of the crisis.” Or, as pointed out recently a central banker , “crises are occasions that a shame to waste.”

In fact, the first major evolution of the central bank arrives in the first three decades of the twentieth century. In America, after yet another financial crisis, the Fed was founded in 1913, and after the first world war we are seeing a plethora of central banks in the rest of the world.

The terrible period of super post-war inflation gives to these banks the right/duty to do what they need to do. But at that time the connection of these entities with the national states is still very close: the deflationary policies that led to the devastating crisis of the ’30s depend on the willingness of states to return to the gold standard, not from central banks’s responsability.

“Only in the late 20th century  – remember Nowotny – did we observe a shift in emphasis toward the institutional autonomy of central banks”.

Again, was because the crisis. This time by stagflation, which has undermined the principle according to which central banks should buy government bonds to support the public finances. This principle, it was said, was one of the reasons of State’s fiscal indiscipline, and it was necessary to end.

In Italy, for example, yet in 1973 the then Governor of the Bank of Italy Guido Carli wondered if it was an act of sedition do not buy government bonds, as with those purchases were paid wages and pensions. In 1981, just eight years later, we arrive at the “divorce” which put an end to this practice.

The autonomy of the Central Bank becomes a dogma. With the creation of the ECB dogma becomes law.

And here’s the rub.

Because the “fourth power” of the Central Bank must be founded on a more solid base than opinion of national state’s politicians. It should be the anchor to the supranational law. And the more this law is difficult to change, the more it works. With the advantages that any litigation, for example, on a decision of the ECB, is not discussed on the table of national politics, but of the judiciary. As in the case of the expected decisions of the German Constitutional Court on the ESM.

It’s judges and bankers’s Republic.

This nice drift “Platonic” of European history is not today. Or rather, today revealed a trend triggered in Europe since World War II.

The seed was planted by the Allies in West Germany, when was founded a central bank with a federal structure, the Bank Deutscher Lander, totally independent from nascent German government but subject to the directives of the Committee on Banking ally.

German politicians were not very happy. Nor are they now.

In 1956, Konrad Adenauer lamented that “the central bank is totally sovereign in its dealings with the government, it is responsible only to itself. Here is a entity which is not accountable to anyone, neither the Parliament nor the government. ”

Citizen “Kane-Euro” was born in those years.

One year after the BdL changes its name.

Has become the Bundesbank.

“At the European level – remember Nowotny – central bank independence was mainly strengthened by the example of the Deutsche Bundesbank, and it was a key element in the Delors report in preparation for the institutional set-up of the ECB”.

The result is that “today can be said that the ECB is probably the most independent central bank in the world because its independence is enshrined in the European Treaties, and any change to these Treaty provisions would be extremely difficult and are thus unlikely”. “In most other countries, central bank independence is a matter of national law – and as we have seen, there may always be attempts to change such laws”.

Today the ECB has obtained banking supervision and is poised to become one of the protagonists of banking’s resolution mechanism with the Commission EU. Its independence is immeasurably enhanced by not having a State behind. This puts it at the center of all global processes without having the hassle, such as the Fed has, of dealing with the economic policy of the state that hosts it.

European Central Bank allows a political divorce with national state.

With the establishment of the ECB the four powers – central banks, legal, legislative and executive – are two: that of the central bank and legal point of view.

Eventually only one remains.

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