Tuesday, November 11, 2014

Maastricht Treaty? We don't need no stinkin' Maastricht Treaty!

From today's Open Europe news summary:

ECB Executive Board member Yves Mersch said yesterday that the ECB will begin purchasing Asset Backed Securities (ABS) next week. He added that, “should the situation deteriorate further”, purchases of sovereign debt remain an option.
Bloomberg Reuters

The European Central Bank is strictly prohibited by its founding Maastricht Treaty from buying sovereign debt, yet it plans to do so anyway. 

Here is a direct quote from the Treaty:

21.1. In accordance with Article 104 of this Treaty, overdrafts or any other type of credit facility with the ECB or with the national central banks in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments. 

This should be a lesson to all who believe that people in positions of power somehow will behave differently once in office. Public Choice Theory tells us the opposite; i.e., that people in power are just as self-centered and likely to pursue their personal goals rather than the public ones which they are commissioned to uphold.

Remember Barron's law (tongue in cheek!): An institution that CAN print money WILL print money.

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