Maastricht treaty or no Maastricht treaty, loss of public support for the ECB will diminish its independence.

Capturing the ECB

The ECB Grows Up

European Central Bank (ECB)

According to a knowledgeable ECB source, however, Europe s finance ministers regularly meet in secret with the ECB leadership for a mutual and frank exchange of views on monetary policy and other issues. The dialogue already exists though the public does not know it.

Is the ECB Doing Enough?

The ECB and Its Critics

Ecb Is Now Europe s Anchor

Germany s Case Against the ECB

Helping the ECB Cross the Rubicon

Why the ECB Should Buy American

The ECB Picks Up The Pace

Trichet Takes Control At The ECB

Who Next at the ECB Helm?

It will not do ECB credibility any good if takes an economic collapse to convince it that the coast is clear on the inflation front. The ECB is not the old Bundesbank, which had such public support and trust in Germany that it could get away with almost anything.

ECB President Mario Draghi has said much the same. Indeed, the upcoming summit is missing an important agenda item a European Fiscal Authority (EFA) that, in partnership with the ECB, could do what the ECB cannot do on its own.

To fund these redemptions on behalf of some member states, the ECB would issue bonds in its own name, guaranteed solely by the ECB, but repaid, in full, by the member state. Upon the issue of such an ECB bond, the ECB would simultaneously open a debit account for the member state on whose behalf it issued the bond.

That is what the ECB is now throwing away.

A more feasible option, therefore, would be to provide all workers and pensioners with social security numbers (or the local equivalent) with a payment from the ECB, which governments would merely assist in distributing. Another alternative would be to use the electoral register, a public database that the ECB could use independently of governments.

The ECB and the international community particularly the International Monetary Fund have tried to deal with the crisis by replacing the dearth of private capital with public credit. The ECB shifted its refinancing credit and money creation to the tune of 900 billion toward southern Europe and Ireland, as measured by the Eurosystem s Target balances.

But a September rate move also serves Sarkozy s interests, as it will give him more ammunition to portray the ECB as out of control and in need of political disciplining. For the ECB to protect itself from such charges, far better to wait until October when the bank can go to the public and say in effect

But the ECB is not going to cut rates even though, for public relations reasons of keeping the political wolves at bay, it deceptively hints it might. Don t be fooled by such feints.

Ecommerce and Development Report 2003, UNCTAD SIDTE ECB 2003 1.

There will also be potentially dangerous consequences for the ECB itself. The use of the Lisbon Treaty clause means that the ECB must be given these additional responsibilities.

E commerce and Development Report 2003, UNCTAD SIDTE ECB 2003 1.

The ECB will service (as opposed to purchase) a portion of every maturing government bond corresponding to the percentage of the member state s public debt that is allowed by the Maastricht rules. Thus, in the case of member states with debt to GDP ratios of, say, 120 and 90 , the ECB would service, respectively, 50 and 66.7 of every maturing government bond.

Encrypt an input value with TripleDES under 2.2.x in ECB mode

Now the ECB is reacting with force, but, as Japanese policymakers have found, exiting from deflation is far from easy. ECB President Mario Draghi may fail to bring inflation back to 2 .

Most recently, German Chancellor Angela Merkel has backed ECB President Mario Draghi, leaving Bundesbank President Jens Weidmann isolated. This will enable the ECB to put a lid on the borrowing costs of countries that submit to an austerity program under the supervision of the Troika (the IMF, the ECB, and the European Commission).

But a September rate move also serves Sarkozy s interests, as it will give him more ammunition to portray the ECB as out of control and in need of political disciplining. For the ECB to protect itself from such charges, far better to wait until October when the bank can go to the public and say in effect Look, do you see how reasonable we have been.

If savers in Portuguese banks start moving their money to Germany, the ECB will recycle these euros back to Portugal through interbank deposits. Again, there is no limit to how much money the ECB can recycle, provided Portuguese banks remain solvent which they will, so long as the ECB continues to buy Portuguese government bonds.

So far, the social partners, as ECB president Jean Claude Trichet likes to call the unions, have been quiet. Should this change, the ECB will have to raise rates even if Europe s economic growth remains slack.

So, why is the ECB set on a tougher course? There are three plausible reasons.

Finally, after a good start, the ECB has now placed on hold the additional monetary stimulus that the eurozone needs. Indeed, ECB officials are starting to worry aloud about the rise in inflation due to the oil shock.

Together, the ECB and the EFSF could do what the ECB cannot do on its own. This would provide temporary relief from a fatal flaw in the euro design s until the member countries devise a more permanent solution.

With European interest rates up 200 basis points since late 2005 and the euro near a record high, Sarkozy wants the ECB to stop raising rates now. ECB president Jean Claude Trichet and the Governing Council strongly disagree.

Like it or not, the ECB is effectively financing the sovereigns. German leaders have frowned on this, and the ECB has felt uncomfortable, limiting its purchases and saying that political leaders, not central bankers, should save the euro.

By contrast, were the ECB to adopt decisive measures, it could reflate the entire eurozone and obviate the need for countries to act unilaterally. But, while the ECB has the capacity, the question remains whether it is has the will.

Tensions at the ECB and between the euro zone countries do not bode well for the stability of the common currency, both externally, vis à vis other currencies, and internally, in terms of inflation. The ECB will be scapegoated for that.

In addition, the ECB could purchase EIB bonds on secondary markets, which would help to keep funding costs low or even reduce them. More important, purchases of EIB bonds would enable the ECB to undertake quantitative easing without triggering the degree of controversy implied by intervening in 18 separate sovereign bond markets, where concerns that ECB purchases would affect the relative pricing of sovereigns are very real.

The public should be relieved if the ECB raises rates, because this would most likely signal that the long awaited economic recovery is well under way, and that inflationary repercussions are being addressed. A hike, in other words, would indicate that good things are happening.

Indeed, the ECB will soon have to confront the fact that structural reforms and fiscal austerity fall far short of being a complete solution to Europe s debt problems. In October and November, the ECB will announce the results of its bank stress tests.

In short, the ECB bond buying program has transformed the ECB from a passive observer of the euro crisis, paralyzed by the outdated legalistic constraints of the Maastricht Treaty, into a proper lender of last resort. With powers to monetize government debts similar to those exercised by the US Federal Reserve, the Bank of Japan, and the Bank of England, the ECB can now guarantee the eurozone against financial contagion.

From this perspective, the proposal to use the IMF as a conduit for ECB resources (thereby circumventing restrictions imposed by European Union s treaties), while providing the ECB with preferred creditor status, would exacerbate the Fund s exposure to risky borrowers. This arrangement could be seen as an unwarranted abuse of Fund seniority that, in addition, unfairly frees the ECB from the need to impose its own conditionality on one of its members.

Finally, both the EFSF and the ECB ultimately rely on the same eurozone resources for their financial strength. If markets start panicking about large eurozone defaults, they could question whether even a willing Germany has the necessary capacity to support the EFSF ECB combine.