A Question, Mr. Trichet. Why Is Dad Out Of Work?
(Bloomberg) -- Packing little Jean-Marie, Hans or Mario off to school sometime soon? You might want to start wondering what they will be learning.
Jean-Claude Trichet, the president of the European Central Bank, is spending a chunk of money on an education kit for schools, giving teachers the chance to introduce the work of the central bank to their pupils.
Under the title ``Price Stability: Why Is It Important for You?'' the bank has included an information pack, plus a short animated film. In total, about 50,000 secondary schools in the European Union will receive the kit. Anyone with too much time on their hands can take a look at the ECB's Web site (www.ecb.int).
The bank needn't have bothered.
``It is really just propaganda and a waste of ECB money,'' said Stuart Thomson, a fixed-income analyst at Charles Stanley Sutherlands in Edinburgh, in a telephone interview. ``If market professionals can't figure out what they are doing, how can a class of schoolchildren?''
The film is reminiscent of the cheaper programs on Nickelodeon TV. A couple of teenagers look suitably bored as they are lectured on the mechanics of monetary policy, when all they want to do is get back to playing with their mobile phones and iPods. Then they perk up as they are given a tour of different trades, in which helpful business people explain how hard it is to run a company when prices are changing all the time.
Questions for Teacher
As any teacher will say, lecturing children isn't enough. To stimulate their fresh, innocent minds you need a debate. Fortunately, my school days are long gone. Still, if I was confronted with the ECB video, here are the questions I'd ask:
How come Dad doesn't have a job?
Unemployment in the euro area was 8.3 percent in October, according to Eurostat, the EU statistics agency in Luxembourg. That's more than 12 million people out of work. It has barely shifted since the euro was introduced. The ECB still insists on maintaining price stability, yet refuses to actively promote employment.
What will I do when I finally get out of this boring school?
The unemployment rate among people younger than 25 in the euro area was about 17 percent in October, according to Eurostat. It shows little sign of falling, even with the supposed pick-up in the economy. In Greece, youth unemployment was about 26 percent in June. So, somewhere between a fifth and a quarter of the people in this classroom won't find a job. The ECB hasn't been able to promote growth in the region to create jobs.
Higher Interest Rates
Why have interest rates just been raised while economic growth is dismal?
This month, the ECB increased the benchmark lending rate to 2.25 percent, again in line with its mission to maintain price stability. And yet growth in the region is still weak: just 1.6 percent for the euro countries in the third quarter, compared with 4.3 percent in the U.S. In Italy, the economy will expand just 0.2 percent this year, according to the employers lobby group Confindustria. That is just a whisker away from another recession -- and hardly justifies a rate increase.
How can you run a single currency without a single government?
Surely the euro was meant to be a stepping stone toward a single European government, not a full stop. Yet the rejection of the European Constitution in France and the Netherlands means that process has come to a halt. The competing needs of the different countries will never be absorbed when there are no agreed rules on fiscal and tax policy -- and no progress toward them.
Opt-Out Countries
If the euro is so great, why have the U.K., Sweden and Denmark been doing better than most of the euro countries?
One or two years of better growth by the nations that opted to stay out of the euro might be explained away. Yet the countries that hung on to their own currencies appear to have performed better.
``The kids should remind the ECB governors of the old proverb: Do unto others as you would have others do unto you,'' said Dirk Chlench, an economist at Hypothekenbank in Essen AG, in an e-mailed response to questions. ``On the one hand, the ECB is permanently bashing democratically elected governments in the euro area for their allegedly loose fiscal policy, but on the other hand the ECB pays no attention to the widely shared fears of politicians that the premature ECB interest rate hike might derail the incipient recovery.''
Trichet and the ECB have a lot of explaining to do. The video, probably inadvertently, illustrates much of the problem with the central bank, and why the euro has been so disappointing even to its proponents.
Wider Mandate
The ECB defines its job just in terms of price stability. So far it has shown no interest in widening its mandate or in reassessing the responsibilities that come with being a single central bank for a whole continent.
Yet, it is simply not good enough to repeat the mantra of price stability. A new currency needs to offer people a bit more than just the grind of an endless war on inflation. It needs to take an active role in promoting employment.
The ECB doesn't even try to do that. Perhaps it's time the central bank did a little less teaching and a bit more observing. It might even learn something.
To contact the writer of this column:
Matthew Lynn in London at matthewlynn@bloomberg.net.
Jean-Claude Trichet, the president of the European Central Bank, is spending a chunk of money on an education kit for schools, giving teachers the chance to introduce the work of the central bank to their pupils.
Under the title ``Price Stability: Why Is It Important for You?'' the bank has included an information pack, plus a short animated film. In total, about 50,000 secondary schools in the European Union will receive the kit. Anyone with too much time on their hands can take a look at the ECB's Web site (www.ecb.int).
The bank needn't have bothered.
``It is really just propaganda and a waste of ECB money,'' said Stuart Thomson, a fixed-income analyst at Charles Stanley Sutherlands in Edinburgh, in a telephone interview. ``If market professionals can't figure out what they are doing, how can a class of schoolchildren?''
The film is reminiscent of the cheaper programs on Nickelodeon TV. A couple of teenagers look suitably bored as they are lectured on the mechanics of monetary policy, when all they want to do is get back to playing with their mobile phones and iPods. Then they perk up as they are given a tour of different trades, in which helpful business people explain how hard it is to run a company when prices are changing all the time.
Questions for Teacher
As any teacher will say, lecturing children isn't enough. To stimulate their fresh, innocent minds you need a debate. Fortunately, my school days are long gone. Still, if I was confronted with the ECB video, here are the questions I'd ask:
How come Dad doesn't have a job?
Unemployment in the euro area was 8.3 percent in October, according to Eurostat, the EU statistics agency in Luxembourg. That's more than 12 million people out of work. It has barely shifted since the euro was introduced. The ECB still insists on maintaining price stability, yet refuses to actively promote employment.
What will I do when I finally get out of this boring school?
The unemployment rate among people younger than 25 in the euro area was about 17 percent in October, according to Eurostat. It shows little sign of falling, even with the supposed pick-up in the economy. In Greece, youth unemployment was about 26 percent in June. So, somewhere between a fifth and a quarter of the people in this classroom won't find a job. The ECB hasn't been able to promote growth in the region to create jobs.
Higher Interest Rates
Why have interest rates just been raised while economic growth is dismal?
This month, the ECB increased the benchmark lending rate to 2.25 percent, again in line with its mission to maintain price stability. And yet growth in the region is still weak: just 1.6 percent for the euro countries in the third quarter, compared with 4.3 percent in the U.S. In Italy, the economy will expand just 0.2 percent this year, according to the employers lobby group Confindustria. That is just a whisker away from another recession -- and hardly justifies a rate increase.
How can you run a single currency without a single government?
Surely the euro was meant to be a stepping stone toward a single European government, not a full stop. Yet the rejection of the European Constitution in France and the Netherlands means that process has come to a halt. The competing needs of the different countries will never be absorbed when there are no agreed rules on fiscal and tax policy -- and no progress toward them.
Opt-Out Countries
If the euro is so great, why have the U.K., Sweden and Denmark been doing better than most of the euro countries?
One or two years of better growth by the nations that opted to stay out of the euro might be explained away. Yet the countries that hung on to their own currencies appear to have performed better.
``The kids should remind the ECB governors of the old proverb: Do unto others as you would have others do unto you,'' said Dirk Chlench, an economist at Hypothekenbank in Essen AG, in an e-mailed response to questions. ``On the one hand, the ECB is permanently bashing democratically elected governments in the euro area for their allegedly loose fiscal policy, but on the other hand the ECB pays no attention to the widely shared fears of politicians that the premature ECB interest rate hike might derail the incipient recovery.''
Trichet and the ECB have a lot of explaining to do. The video, probably inadvertently, illustrates much of the problem with the central bank, and why the euro has been so disappointing even to its proponents.
Wider Mandate
The ECB defines its job just in terms of price stability. So far it has shown no interest in widening its mandate or in reassessing the responsibilities that come with being a single central bank for a whole continent.
Yet, it is simply not good enough to repeat the mantra of price stability. A new currency needs to offer people a bit more than just the grind of an endless war on inflation. It needs to take an active role in promoting employment.
The ECB doesn't even try to do that. Perhaps it's time the central bank did a little less teaching and a bit more observing. It might even learn something.
To contact the writer of this column:
Matthew Lynn in London at matthewlynn@bloomberg.net.
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