A new deal for the European Central Bank?
The role of the European Central Bank has changed dramatically since 2010, as it has acquired new responsibilities. These transformations are deferred consequences of the rise of corporate capitalism, which parallels the evolution of federal government institutions in the US following the New Deal, argues Dr
The US federal government has existed in its present constitutional form since 1789, but its role has changed significantly since as society has evolved and new institutions have been established. The US government’s role in society and the economy changed dramatically in the early 1930s for example, as President Roosevelt pushed through the New Deal; parallels can be drawn between this period and more recent times in Europe, believes Dr Christakis Georgiou. “Something similar happened in the EU in the 2010s with the transformation of the role of the European Central Bank and the debate on an EU fiscal capacity,” he says. As the Principal Investigator of an SNSF-funded research project, Dr Georgiou is now exploring these parallels in the evolution of federal macroeconomic government institutions. “I am looking at the way in which the US federal government grew fiscally from the New Deal onwards, and at the ongoing debate in the EU about developing fiscal policy at the EU level,” he outlines.
Social sources of large-scale monetary and fiscal federations: An EU-US Comparison
This project has been funded by the Swiss National Science Foundation SNSF.
This article has been funded by the CCDSEE research centre, affiliated to the Global Studies Institute of the University of Geneva.
Project Coordinator, Christakis Georgiou Global Studies Institute Sciences II Université de Genève
T: +41 379 90 82
E: Christakis.Georgiou@unige.ch
W: https://www.unige.ch/gsi/fr/presentation/ enseignants/cer/christakis-georgiou/
W: https://www.unige.ch/gsi/ fr/presentation/centres-derecherche-affilies/le-centre/
Role of central banks
This research partly focuses on the European Central Bank (ECB), which was formally established in 1999. The ECB controls monetary policy in the Eurozone countries, while fiscal policy is decentralised to EU Member States, which it has been argued is a point of fragility. “This meant that individual member states could not count on the central bank to print money to make sure that they would pay back their debts under any circumstances,” explains Dr Georgiou. This raised the question of what precisely was the status of sovereign debt in the EU, and particularly the eurozone, an issue policy-makers tried to resolve through the no bail-out clause of the 1992 Maastricht treaty. “Policy-makers were attempting to signal to financial investors that there would be no bail-out in situations where Member States were unable to repay public debt.
happened because large financial corporations were pushing for a solution that ultimately meant the ECB had to step into the breach,” he says. Parallels can be drawn here with the 20th century transformation of the American government in terms of macroeconomic policy, which Dr Georgiou says was driven by the rise of corporate capitalism. “This is a stage in the history of capitalism where the economy is no longer comprised of many small scale businesses, but is rather dominated by a handful of oligopolistic large corporations,” he explains.
The rise of corporate capitalism is also driving the process of European integration, argues Dr Georgiou, and ultimately the macroeconomic problems the EU faces boil down to that transformation. This project has been relatively small in scale, now Dr Georgiou plans to write a book building on his findings, as well as to
The central bank would not make sure that they would get repaid,” says Dr Georgiou.
Many financial investors did not view this as a credible position and the Maastricht agreement was called into question, sparking debate started about how to essentially recreate the central bank-treasury nexus at the EU level. The corporate community played a major role in pushing for fiscal centralisation, as it did previously in making the case for the founding of the ECB, argues Dr Georgiou. “Some economists say that the ECB has taken on the role of lender of last resort. My argument is that that has
conduct research into the role of large European corporations around the Maastricht deal. “I’m particularly interested in exploring how the German government came to back the single currency. The proposal for a single currency essentially came from Rome and Paris, and Berlin was the capital that had to be persuaded to go along with it,” he says. Evidence suggests that large private banks in Frankfurt played the crucial role in persuading then-chancellor Helmut Kohl to sign up to the Maastricht treaty, now Dr Georgiou plans to dig deeper. “I want to uncover archival evidence,” he says.
Christakis Georgiou
Some economists say that the ECB has taken on the role of lender of last resort. My argument is that that has happened because large financial corporations were pushing for a solution that ultimately meant the ECB had to step into the breach.