On Ordoliberalism & the ECB
The Economist included, in an issue published earlier this month, what was (to me at any rate) a useful discussion of ordoliberalism. I admit I was, prior to reading the piece, unfamiliar with this particular branch of German intellectual history, but if you accept the article’s argument (and I don’t have the wherewithal at present to quibble) that ordoliberalism has had a continued and significant influence on German and, by extension, Eurozone economic policy, then what’s rather shocking is just how distorting that influence has become. The Economist describes the intellectual relationship as follows:
From the original ordoliberals sprang one big idea…A second was a strict monetary policy that focused rigidly and exclusively on price stability…Through Ludwig Erhard, West Germany’s first economics minister and second chancellor, ordoliberalism strongly influenced post-war economic policy. There was a brief flirtation with Keynesianism in the 1960s. But Germany passed its philosophy of antitrust vigour and monetary hawkishness on to the European Union and the ECB.
And in fact the ECB does focus rigidly and exclusively on price stability; here is how the Bank describes its primary policy objective: “The primary objective of the ECB’s monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term.”
And here is a chart of Eurozone and German inflation, running from 1996 to present (click to enlarge):
The eagle-eyed among you will readily observe that since about August 2007 inflation in the Eurozone has spent considerable time below and above the ECB’s 2% target, but really very little time at all hovering anywhere near it. In fairness to the ECB, that time frame coincides nicely with, oh, nothing more daunting than the greatest financial catastrophe since the Great Depression, so I suppose it has not been the easiest task to keep inflation on trend.* But still. Between the article and that chart you might reasonably conclude both that the ECB was given a monetary policy mandate ripped straight from the ordoliberal’s guide to central banking and that it has failed to achieve even that.** If German policymakers ought to be pleased by a central bank operating in accord with ordoliberal principles, they should according to their own criteria be upset with the last eight years of ECB performance. That they (and other European inflation hawks) are not is puzzling, to say the least. An uncharitable reading of the situation might indicate there really does percolate in Germany a near-pathological aversion to high inflation such that any policy which could remotely be linked to bringing it about is fiercely opposed. But regardless of the source of this inflation hawkishness, its presence does suggest the mere existence of the ECB’s current quantitative easing program represents a real political triumph for Mario Draghi. After all, he seems to be up against some pretty inexplicable opposition.
*Sidenote: how long is it before a central bank hits its inflation target and tweets out something about “inflation on point/fleek”?
**In fairness, it’s not like the Finns or, say, the Dutch have been particularly inflation-friendly, so Jörg Asmussen or now Sabine Lautenschläger, and a German predilection for ordoliberalism in general can’t shoulder all the blame on their own