Patrick Minford's picture
Affiliation: 
Cardiff Business School
Credentials: 
Professor of economics

Voting history

ECB's quantitative easing

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Question 2:

Do you agree that the structure of the ECB's QE programme makes the Eurozone more fragile and increases the risk of one country leaving the euro?

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Answer:
Disagree
Confidence level:
Confident
Comment:
Comparisons with the US get us nowhere. The euro is a creation totally dependent on the commitment of the participating governments. Its 'fragility' consists purely in that. The dollar does not suffer from this because the US is one country. As I argued above on Q1 all this talk of who has the credit risk is arcane; if a country leaves the euro and goes bankrupt, other countries will wind up with large unpaid debts, thus inevitably the risks of the enterprise- whether OMT, Target-2 balances or QE- are shared. However the curious thing about the euro is that it has been given overriding priority by participating governments in spite of the economic disasters it has provoked. The criticisms of it that were widely made by sceptical economists have turned out to be totally and tragically accurate. Yet still it ploughs on. As long as politicians do not deviate from this priority, it will remain and avoid its fragility. Only if a new generation of politicians should somehow come on the scene and rethink this commitment, would the structure die. One can look at it this way: the euro is not fragile and the ECB policies not at risk provided euro politicians remain quite irrationally attached to its existence. There is no sign of any end to this irrationality.

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Question 1:

Do you agree that the design of the ECB's QE programme reduces its effectiveness? 

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Answer:
Disagree
Confidence level:
Confident
Comment:
This argument about credit risk neglects political commitment. Under M. Draghi the ECB has committed itself to keeping down the yields of government bonds via 'OMT'. Furthermore politicians of all relevant countries have shown clear aversion to leaving the euro- even in countries most likely to, such as Greece. It is true that a country could go bankrupt within the euro and if so its government bonds held by its national central bank would be worthless; yet we are also to believe that the ECB is made up of its national central banks (there is nothing else after all) and so this means the ECB loses some of its capital, thus effectively sharing the risk. Since even the most hopeless euro-zone countries, notably Greece, have not been allowed to go bankrupt, this seems an arcane consideration. In fact the whole notion that credit risk in buying national government bonds is *not* shared by the ECB seems far-fetched. As has been widely noted, the ECB has extended a mass of credit to private banks in particular countries, using facilities from other member countries' central banks- the Target-2 balances. Yet the credit risk associated with this is shared as long as all countries continue in the euro. So under the proviso of commitment to continuation of the euro and the avoidance of threatening country bankruptcy or departures from the euro, there is no problem with the QE programme's effectiveness. I interpret the total unwillingness to allow departures in this sense; once countries leave, the commitment here unravels and ECB policy is undermined from many directions. Thus credit risk attaches to national central banks, the OMT programme comes under pressure as governments become risky again, and the ECB's viability itself comes into question. The truth is that the ECB is the sole euro-zone governmental institution. Its power to govern- stimulate money and activity- depends on the assent of the national governments. If that commitment went, the ECB could not fulfil its functions. But as long as it stays the ECB's wrigglings to satisfy reluctant participants are just seen as effective manoeuvres to get QE done.

Deal or no deal: The Greece standoff

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Question 3: Do you agree that implementation of the agreement will lead to an expected decrease in Greek debt repayments?

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Answer:
Disagree
Confidence level:
Confident
Comment:
In theory yes but in practice nothing has changed: Greece will pay back little if any of its debts and the new agreement if it happens will make no difference,

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Question 2: Do you agree that Greece would be better off defaulting right now rather than signing to the agreement under consideration?

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Answer:
Strongly Agree
Confidence level:
Extremely confident
Comment:
Greece should default now and leave the euro- not the EU, since for well-known foreign policy reasons this would be awkward for all. It should decide on its own policies; it is pointless for others to dictate policy to a sovereign nation and even counter-productive. Greece must learn in its own way. Yes, there will be some confusion and 'chaos' for a time; capital controls will be needed while a new currency is put in place. Then Greece will steadily begin to recover as devaluation triggers new export demand, business confidence returns, and national self-confidence too. Some contributions will be made to service existing foreign debts which will be redenominated in the new drachma. But the overhang of impossible debt will be removed; official creditors, the great bulk now, will have to explain to their electorates that they will not get a lot of their loans back but their electorates probably already knew this.

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Question 1:  

Do you agree that, on balance, the implementation of the agreement as outlined in media reports will have a non-trivial negative effect on Greek GDP?

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
This is really not the point. This agreement if it happens- which is likely; a further dollop of euro-fudge- will continue the current bail-out series under which Greece is pressurised by the Troika to make reforms which it refuses in practice to make but pretends to do so and in return receives loans which the Troika pretend will be paid back and yet clearly neither can nor will be. Under this series Greece has gone into recession and has no real prospect of recovery. With terrible supply-side policies, business confidence gone, consumer confidence similarly gone and government demand on mere life support, Greece has no hope. The current agreement will not change this.

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