Seigniorage to the Rescue

When the Eurozone gets its act together (which should be well under way) and supplies a unified sovereign for the European Central Bank, the Governor of the ECB will finally be able institutionally and constitutionally, to take all the necessary actions that will end the Eurozone crisis.  Wisely and resolutely  Mr Draghi has refused to step outside the remit the Bank has under current laws,  ignoring the siren calls to do just that and destroy the standing of the Bank  and its capacity to command the trust of both the markets and the people.  A Central Bank is not a sovereign, least of all in a democratic world,  even if it could be, briefly, in the face of global financial and economic meltdown fears.

It is notable that Mario Draghi has never said that he cannot act but that he cannot act under the current Treaty.  Nor has he said that he will not act if terms change.  He has both the means and the will to act as soon as there is a sovereign to instruct him to do so.  Which puts a  different, wrecker's light upon Cameron's gesture of seeking a quid pro quo entirely unrelated to the matter under discussion  in return for according unanimity, and the European Union institutional and legislative processes, to the creation of appropriate structures under which the Governor of the European Central Bank can act.

For if creating the new agreements on the actions permitted to the Central Bank is successful  there will be no Euro collapse.  Instead there will be a significant transfer of wealth from outside the Euro area into the Euro area (on balance) and, globally,  from those who have betted against  the Euro to those who accepted its  soundness.  Those who have  sold  Euro sovereign bonds  may bitterly regret having done so,  although they will lose nothing but  the profits  they would have made from them.   Those who have sold short will incur  losses.  It is difficult to assess the extent of these losses  because they depend on the time-pattern of purchases and sales,  and the size of short sales and credit default swaps cover (CDS will become worthless to the benefit of issuers);  the Euro will rise to its historical peak, around 1.50 to the dollar, the cost of Euro sovereign debt will fall leaving room for easing austerity measures and reviving the Euro economies in spite of the loss of competitiveness from a stronger Euro.

With 3.3 trillion euros of resources from its seigniorage enabling the ECB to continue its purchases of eurozone government bonds, and the changes needed in the ECB's statutes,  the Euro is unlikely to be brought down to save the profits ( how great can they be?) of  some global speculators.  The political forces ranged against the Eurozone and against the financial and economic measures it embraces have chosen an economic rather than political offensive and in so doing may well find themselves beaten off and out of pocket.