War Of The Central Banks? [TESTOSTERONE PIT]


The coordinated confidence-inspiring words from the Eurozone’s fearless leaders yesterday and today about doing whatever it would take to save the euro wasn’t about Greece anymore. Its life support may get unplugged in September. Politicians have apparently given up. The tab isn’t that dramatic: default and return to the drachma would cost Germany €82 billion and France €62 billion (Ifo Institute PDF). Survivable.

The fearless leaders were afraid of Spain, whose vital signs were deteriorating.Unemployment hit 24.6%, worse than Greece’s 22.5%. In the southern region of Andalusia, it rose to a mind-boggling 33%. Youth unemployment (16-24) set a sobering record of 53.3%. Even more worryingly, in a country where family solidarity and multi-generational households are the norm, the number of households where no one worked climbed to 1,737,000. So, in the first half of 2012, over 40,000 Spaniardsemigrated—up 44% from last year. Instead of consuming and producing in Spain, they took their education that society had invested in and sought their fortunes elsewhere.

Despite repeated assurances that Spain would not need a bailout other than the €100-billion bank bailout, Spanish Economic Minister Luis de Guindos flew to Berlin to meet with German Finance Minister Wolfgang Schäuble … to discuss a bailout. For €300 billion. And hours beforehand, “sources” told the Spanish media that if Spain didn’t get its wish list, whose top item was a massive bond-buying program by the ECB to force Spain’s borrowing costs down, Spain would consider “more forceful measures.” Because Spain had no money to meet its obligations in October, it would have todefault! The D-word made into print. A scary message for the fearless leaders of the Eurozone [for that whole debacle, read.... The Extortion Racket Shifts to Spain].

It worked! Thursday, European Central Bank President Mario Draghi caved: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” Emphasis on believe me—as in “I beg you, please believe me”—because the other part of his pronouncement, within our mandate, is controversial. It’s where the ECB had clashed with the German Bundesbank and others who stubbornly clung to the notion that the treaties governing the ECB gave it only one mandate: price stability. Not propping up stock and bond markets.

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