On 23 August 2017, the president of the European Central Bank (ECB) gave a speech titled ‘Connecting research and policy making’ at the annual assembly of the winners of the Nobel Price for Economics in Lindau, Germany.1 What Mr Draghi talked about on this occasion – and especially what he didn’t talk about – was quite revealing.
Any analysis of the causes of the latest financial and economic crisis is conspicuously absent from Mr Draghi’s remarks. One gets the impression that the crisis came basically unexpected, out of the blue. There is no mention of the role of central banks, the monopoly producers of unbacked paper (or: fiat) money, played for the crisis.
No word that central banks had for many years manipulated downwards interest rates – accompanied by an excessive increase in credit and money supply – causing an unsustainable ‘boom.’ When the bust set in – triggered by the spreading of the US subprime crisis across the globe – the ugly consequences of this central bank monetary policy came to the surface.
In the bust, many governments, banks and consumers in the euro area found themselves financially overstretched. The economies of Southern Europe especially do not only suffer from malinvestment on a grand scale, they also found themselves in a situation in which they have lost their competitiveness.
This post was published at Ludwig von Mises Institute on August 30, 2017.
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