ECB keeps its head in the sand as German economy contracts

Draghi, where are you?

The Economist's Ryan Avent has made waves with a well-timed punchy question: why are we acting like the fact that the eurozone hasn't actually imploded means everything is alright there?

Some perspective is in order. Real euro-area output is at roughly the level of the end of 2006 and it is declining. The euro-area economy hasn't grown since the third quarter of 2011. Total employment is below the level first attained in the second quarter of 2006 and it is declining. The unemployment rate is of course at a record high 11.8%. And inflation—both core and headline—was virtually nil in the second half of 2012.

That's simply a dismal macroeconomic performance.

The European Central Bank deserves some credit for having halted the repeated attacks on the currency — and perhaps that credit should go to the president of the bank, Mario Draghi, himself. His declaration last July that the euro would be preserved "whatever it takes" is widely held to have been the turning point at which the survival of the euro was assured.

But the ECB's target should be higher than merely ensuring the continued existence of the currency it was created to oversee. And it's not just that the bank is trying, but failing, to boost demand in the eurozone. It has done, essentially, nothing. Interest rates remain well above even the zero-bound where conventional monetary policy falls apart, and its unconventional measures — which it was happy to employ when it was in a do-or-die situation — have been non-existent.

According to statistics released yesterday, Germany contracted by 0.5 per cent in the fourth quarter last year. Germany! That's the country that's supposed to be the beating heart of the eurozone. It's one thing when the analysis was that the ECB was unfairly trading Greek health for Germany; but based on who's being touted as success stories these days, you'd be forgiven for thinking that it's trading German health for Estonian. (Estonian GDP grew by 8 per cent in 2011, but that still left it 9 per cent below its pre-crisis peak — it's certainly not an unambiguous success story).

Draghi is apparently hoping that global growth will sweep in and restore the European economy from without, and that all he needs to do is keep it ticking over until then. But the job of a central bank governor is not to wait for dei ex machinae. And given the size of the eurozone, it may be rather hopeful to conclude that the is such a thing as a separate worldwide economy. Can the rest of Europe have a proper recovery with the eurozone depressed? What about the economies of North America, or Japan?

There's a temptation, especially on the part of those pessimistic about the EU in general, to throw their hands up and declare the situation irreconcilable. But despite — maybe because of — the ECB failing to even recognise there's a problem, it's not clear that it has no possible solutions. Once it gets its head out of the ground, maybe it will realise there are things it could have been doing all along.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Green party calls on Labour, Lib Dems, and Plaid Cymru to form a "progressive alliance" next election

Will Jeremy Corbyn, Tim Farron and Leanne Wood agree to meet for talks?

The Green party leadership have called upon Labour, the Lib Dems and Plaid Cymru to work together to challenge the Tories at the next election. In an open letter, the Green leaders stress the exceptional circumstances occassioned by the vote to leave the EU:

“In a spirit of openness and transparency, we are writing to you as leaders of parties which oppose Brexit, to invite you to a cross-party meeting to explore how we best rise to the challenge posed by last week’s vote to Leave the EU.  

“We have a UK Government in chaos, an economy facing a crisis and people up and down the country facing serious hardship. There is an urgent need to make a stand against any austerity and the slashing of environmental legislation, human and workers’ rights, that may come with Brexit. 

“With the growing likelihood of an early General Election, the importance of progressive parties working together to prevent the formation of a Tory-UKIP-DUP government that would seek to enact an ultra-right Brexit scenario is ever more pressing.

Caroline Lucas shot down a rumour that she would be joining Corbyn’s shadow cabinet. But her party has decided to call for a progressive alliance and an early general election. 

Key to such cross-party talks would be the demand for electoral reform, as the leader Natalie Bennett added in a statement:

“Central to such a progressive alliance would be a commitment to proportional elections for the House of Commons and an elected second chamber.”

The call for a more plural politics follows a post-referendum surge in Green party membership, with up to 50 people joining per hour.

Here’s the letter in full:

Open letter to: Jeremy Corbyn, Tim Farron, Leanne Wood on behalf of Green Party of England and Wales,

In a spirit of openness and transparency, we are writing to you as Leaders of parties which oppose Brexit, to invite you to a cross-party meeting to explore how we best rise to the challenge posed by last week’s vote to Leave the EU.  

Britain is in crisis and people are scared about the future. Never have we had a greater need for calm leadership to be shown by politicians.  

We have a UK Government in chaos, an economy facing a crisis and people up and down the country facing serious hardship. There is an urgent need to make a stand against any austerity and the slashing of environmental legislation, human and workers’ rights, that may come with Brexit. 

With the growing likelihood of an early General Election, the importance of progressive parties working together to prevent the formation of a Tory-UKIP-DUP government that would seek to enact an ultra-right Brexit scenario is ever more pressing.

This is an opportunity to recognise that a more plural politics is in both the Left’s electoral and political interests. This crisis exposes the absurdity of our first past the post electoral system.  Just 24 per cent of those eligible to vote elected the government that called the referendum. The only fair way to proceed is to have a proportional voting system where people can back the politicians who they believe in, rather than taking a gamble and not knowing who they will end up with.  

The idea of a progressive alliance has been floated for several years, and proposals have once again been put forward in the context of the current crisis.  We believe that the time has come to urgently consider such ideas together in the context of a Westminster Government. We recognise the very different political situation in Scotland, given the strongly pro-EU majority there. We hope that co-operation between progressive parties their can ensure that this mandate is respected, and we will support them to keep all options open.

We look forward to your response,

Natalie Bennett, Leader of The Green Party of England and Wales

Steven Agnew MLA, Leader of the Green Party of Northern Ireland

Alice Hooker-Stroud, Leader of Wales Green Party

Caroline Lucas, MP for Brighton Pavilion

India Bourke is the New Statesman's editorial assistant.