Eurozone in danger. Bitcoin separates money and state – Bitcoin Magazine
This is an opinion piece by Marie Poteriaieva, a Ukrainian-French crypto industry observer and educator, who has followed the space since 2016.
Something is rotten in the EU.
The euro has reached parity with the US dollar for the first time in twenty years.
In June, annual inflation in the euro area reached 8.6 per cent. The spread between the euro countries’ interest rates is worryingly large.
Of course, energy problems brought on by the war in Ukraine played a sinister role, just as the disrupted supply chains contributed to the economic difficulties on top of the COVID-19 pandemic.
What most media tend to forget, however, is the European Central Bank’s role in all of this. As the ECB tries to divert public attention away from its mistakes with a crypto-regulatory crusade, more Europeans are wondering whether money should really be dependent on politics.
The ECB is mishandling inflation
Just like the Federal Reserve, the ECB did not hesitate to turn on the money printing machine after the COVID outbreak and has created almost 4 trillion euros in two years, doubling its balance sheet.
No central bank has done anything as drastic as this before, but instead of taking the necessary precautions and laying out a contingency plan – a logical strategy when it comes to big experiments in real life – ECB President Christine Lagarde hung up and went on to reassure the Europeans that it was all under control.
These feats of denial went on and on, even as inflation became a reality, even as the Fed began to raise interest rates… and then suddenly on June 9, 2022, the ECB announced the upcoming 0.25% interest rate hike in July, and then another in July. September. The European markets fell back.
Why so late (three full months after the Fed)? Why so suddenly? Why so modest? Has the ECB simply panicked? Lagarde has chosen the worst possible timing for this kind of announcement, which has raised doubts about the professionalism of her office. However, this was not the only problem she had to face.
The ECB puts the Eurozone at risk
Unlike the US, the Eurozone consists of 19 sovereign countries, which have their own economies, more or less able to withstand interest rate increases.
While some less indebted states, such as Germany or the Netherlands, will be able to pay a higher interest rate on their bonds, other countries with higher debt-to-GDP ratios, such as Italy or Spain, will not. The cost of maintaining the debt will be too high.
This makes countries like Italy a greater risk, which in turn increases the returns that potential lenders would expect in return for lending them money. The higher the interest rates, the worse the situation for these countries, which makes them a greater risk, which leads to an increase in interest rates. This is the vicious circle of debt and half of the Eurozone may now be facing a debt crisis that puts the Euro at risk for everyone.
The difference between interest rates within the eurozone is known as the spread, and the ECB’s ill-timed announcement pushed it wider: Italian 10-year bond yields climbed above 4% and Spanish bonds hit 3% (both have since corrected to 3.37% and 2.47). %). German 10-year bonds are trading at 1.25% and Dutch 10-year bonds are yielding 1.57%.
The ECB held several emergency meetings to discuss this issue. On 15 June it announced that it would design a new “anti-fragmentation tool” and on 15 July it announced that it would buy vulnerable debt, i.e. continue to do exactly what got the euro into trouble in the first place. place.
How far can this practice go? Imagine if the ECB for every German bond that has matured buys an Italian one. Not only will the ECB find itself pumped with risky bonds, but Germany will definitely not be happy, creating a dangerous rift in the Eurozone.
It’s been nearly a month since the ECB’s announcement, but still no magic “anti-defragmenter” in sight. Meanwhile, the euro is weakening by the day, reaching parity with the dollar, and falling below the Swiss franc (both have traded above 1.66 previously).
ECB attacks cryptocurrency
More Europeans are beginning to wonder whether the ECB involvement has not made things worse for the euro, and whether Christine Lagarde has any idea what she is doing.
Several live interviews have contributed to this doubt: when a Dutch interviewer kept asking how the ECB was going to reduce its bloated balance sheet, all he got was “it will come.“Not very reassuring.
However, Lagarde has an ace up her sleeve: Whenever the conversation gets daunting, she resorts to cryptocurrency, which she assures is “not money, period.” Lagarde does not hesitate to accuse it of all sorts of sins, including money laundering (who needs real data, when so few people fact-check?).
The ECB has repeatedly urged EU lawmakers to approve new rules for cryptocurrencies “as a matter of urgency,” and they recently did so. The infamous Markets in Crypto Assets Act (MiCA) and its accompanying Anti-Money Laundering (AML) rulebook set out the world’s strictest regulation of cryptocurrency, which will, among other things, oblige service providers to collect and report data about the participants of every crypto transaction, even if as little as €1.
This did not satisfy Lagarde, who reappeared at the end of July, calling for a MiCA 2, which would “regulate more deeply” the industry.
The intensity of her distaste for bitcoin and the associated effort she expends, all while the euro – which is her primary job – is in distress, can only suggest hidden agenda(s). For example, distracting Europeans from their real problems with a fight against imaginary ones. Otherwise, prevent them from turning to bitcoin.
Bitcoin alternative
Of course, bitcoin’s volatility makes it difficult to be used as a universal store of value or means of payment, yet.
However, its inherent independence, scarcity, limitless and indiscriminate nature make it a very suitable candidate to replace fiat currencies. Furthermore, as grassroots adoption grows and block rewards decrease, speculative price fluctuations are bound to decrease, making the bitcoin price more stable, while the Lightning Network ensures scalability.
Is it this perspective that scares the ECB so much? We wouldn’t know, but its determination to paint bitcoin black and prevent its use is remarkable.
Meanwhile, the attention span of Eurozone citizens appears to be longer than Lagarde might have hoped for, and more voices are rising to blame the ECB’s irresponsible and short-sighted policies for inflation and the danger she put the EU in.
This trend is in line with the growing distrust of central banks around the world (a recent Financial Times article compared them to Tinkerbell: They only exist if people believe in them, and this belief is now waning).
It is a good time to remember the famous quote by Friedrich Hayek. “[T]the root and source of all monetary evil is the government’s monopoly of money.” We must call for a separation between money and state.
The Austrian school of economics, of which Hayek was a prominent representative, argued that central banks’ monopoly on money creation and their proximity to the state creates a conflict of interest, as the state gains power and “easy” financing through its proximity to the state. money.
This statement is even more true in the 21st century than it was in the 20th century. You only have to check how grotesquely indebted most states are now. However, another thing that the 21st century brought to the debate is Bitcoin: the most appropriate tool to start the “soft” separation of money and state.
Perhaps the ECB’s fears are justified after all.
This is a guest post by Marie Poteriaieva. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
