ECB (finally) gets bashed in Spanish elections

The EU typically plays a minor role in Spanish electoral campaigns. However, El País reports that “the crisis has also upset this, and for the first time since the 80s, the Spanish campaign has begun with a clash between the two primary candidates on the way the European Union is tackling the crisis.”

Indeed, the ruling Socialist Party’s spokesperson and prime ministerial candidate Alfredo Pérez Rubalcaba is criticizing the role of the independent European Central Bank:

The European economy is immobile. Austerity alone is no good for exiting the crisis. […] We are missing the policies for growth to create jobs. And we have to tell the ECB that Europe’s problem is not inflation, but that there are many people who don’t have work. We have to lower interest rates.

I’m continuously stunned that parties both left and right have taken so long to make an issue of this. In a “suboptimal” currency union, it is impossible to have a monetary policy that suits everyone. However, you would expect those getting the short end of that stick to make a little fuss about it, especially when the policies are so narrowly-conceived that one financial analyst goes so far as to accuse the ECB of catering to “the Rhineland zone”.

The case of Spain is particularly striking. The unemployment rate continues to increase and has reached a Depressionesque 21.52%. The country cannot be said to be getting its comeuppance for not “playing by the rules”. Spanish public debt decreased from 67.4% of GDP in 1996 to 36.2% in 2007, meaning it followed the rules of the Stability and Growth Pact better than either France or Germany.

From Spain’s point of view, as the country tries to lower unemployment and return to growth, the policies of the ECB could hardly be more devastating:

  1. A focus on fighting headline inflation, using a baseline interest rate of 1.5% for loans (the equivalent figure is 0% for the Fed and Bank of Japan), increasing it twice through 2011, and thus limiting investment.
  2. As the rest of the world engages in competitive devaluation and “currency wars” to boost their exports, the ECB is pursuing an “ultra-hard” monetary policy. The euro currently trades for $1.41 or £0.88.
  3. A refusal to commit to being a lender of last resort, feeding financial speculation against national debts and forcing governments to get high-interest loans on the financial markets.
  4. Advocating more budget cuts and “expansionary-austerity”.

Why isn’t the Spanish political class (scratch that, the politicians of the whole of Southern Europe) up in arms about this? I suspect Europe’s leaders don’t want to get into public tiffs over the ECB and monetary policy in general is too abstract to inspire the public’s ire.

The ECB’s independence and the fact that the Socialist Party is already in power in Spain (and will probably lose in November) means whatever Rubalcaba says will probably be a little immediate import. However, if other campaigning leaders begin to make an issue of this – at a time when a new ECB president has taken office and the centre-left appears likely to make major gains in France, Germany and Italy – we may have the beginnings of a public debate on Europe’s monetary policy and the statutes of the ECB.

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