Sabine Lautenschlaeger, a member of the governing council of the European Central Bank, said in a newspaper interview Saturday, July 29, that she and her colleagues must “prepare for the exit” from their present stimulative position.

She told the Mannheimer Morgen, “As time passes, the positive effects [of stimulus] get weaker and the risks increase.”  Although gently expressed, this statement amounted to a fairly hawkish stance for a leader of that particular bank, and it may indicate that winds are turning.

And although her remarks may seem to address a rather technical issue they have a good deal of left/right resonance.

In Europe, when countries such as Greece and Portugal receive assistance from the so-called Troika (the IMF, the European Commission, and the European Central Bank), those three institutions have attached conditions generally summed up under the word “austerity.” Typical demands include: cutbacks in pay-outs to government pensioners, income tax increases, and an increase in social security contributions from the self-employed.

Left Wing View

If an individual gets into a financial hole and his benign uncle offers him assistance, that assistance too may come with strings. The uncle may want assurances this won’t be the beginning of an endless string of bailouts – that the nephew is going to find new sources of income, and cut back on expenditures, even when that means cutting corners on promises rashly made (which is the troika’s take on pensions in some of the southern-tier countries).

But of course if the uncle becomes intrusive, this nephew may rue the assistance, and resent the fact that ‘his’ household decisions are no longer his own. Troika-demanded austerity is offensive both to the left (which prizes the social welfare safety net) and to the right (which prizes national sovereignty) of the bailed-out nations.

In some leftward circles the ECB’s austerity demands are the hoped-for spark that will set off a socialist revolution in the western world.

Yanis Varoufakis, the left-wing economist who served as Greece’s finance minister for the first half of 2015 contends via YouTube that either “capitalism will eat democracy,” or the reverse will happen.

Another YouTube video asks “How Will Capitalism End,” and leaves the implication that the Europe is about to learn the answer to that question, that the central bankers have helped bring it on.

Right Wing View

It is well to remember that resentment felt at the ECB was part of the case for a “leave” vote in the successful Brexit referendum in the United Kingdom last year. The UK has never adopted the euro, thus it retains the pound and its own central bank. But there was a feeling among many that if it stayed in the EU; it would have to choose between being sidelined in decision making (with the ‘Eurozone’ countries taking the lead) and giving up the pound, and its own financial sovereignty, in order to get off the sidelines into the center of the action.

On Monday, blogger and tweeter, ZeroHedge observed that the ECB is still buying a lot of corporate bonds.


Bill Tufts, a Canada-based expert on pensions who is also active on twitter, observes that the European Central Bank “now holds corporate and government debt that amounts to 30% of EU GDP.”

Much of the right (as always, one uses these terms with trepidation about their ambiguities) consists of people who believes that capitalism has never really been given a proper try, that it is an idea that is not at all reflected by the world of central banks and fiat money. Rod Silliphant, a gentleman whose twitter profile says, “MAGA! Donald Rocks!!!”expresses this sentiment directly:

An Anniversary

By chronological coincidence the publication of Lautenschlaeger’s comment about where the ECB should go from here came almost exactly five years after the notorious “whatever it takes” statement by Mario Draghi, the president of that bank. Reflections on the former swallowed up reaction to the latter.

Draghi vowed five years ago at the Global Investment Conference in London, that “within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

With that commitment, Draghi sent the bank down the course whence Lautenschlaeger is now saying it must exit.