Friday 21 August 2015

Richard Murphy points out the futility of Article 123, Lisbon Treaty

From The Telegraph:

[Jeremy Corbyn] has proposed a “People’s Quantitative Easing” scheme in which the Bank of England would “be given a new mandate … to invest in large-scale housing, energy, transport and digital projects”...

Mr Corbyn’s proposals would clash with Article 123 of the Lisbon Treaty, which forbids central banks from printing money to finance government spending. Lawyers warned that a lengthy fight with the EU would be a certainty, and could mean that infrastructure projects end up incomplete.

Traditional QE was introduced by the Bank in 2009, since when it has intervened in the bond market to buy Government debt. Key to this is that the Bank buys bonds from the so-called secondary market - from private investors rather than directly from the Government.

Buying the instruments directly from the state is illegal under Article 123 of the Lisbon Treaty. Richard Murphy, who Mr Corbyn has named as the architect of People’s QE, has proposed “a ruse” in order that the Labourite’s plans not attract the ire of EU lawmakers.

“The bonds have to be sold into the financial markets first, but there is no reason at all why this could not be for an agreed fee akin to underwriting, after which the bonds are, indeed purchased by the Bank,” he has said.

Mr Murphy said that Article 123 was clearly a piece of legislation whose “sell-by date had passed”, and that some fiddle would be required to get around it. But the EU may not look kindly on attempts to bypass its rules.


Whatever the merits or otherwise of Corbyn's suggested projects are (housing is a great money spinner, you'd struggle to lose money on that), Murphy is bang on with that one.

The Bank of England was originally set up to borrow money from the general public and give it to the government to spend on enlarging the navy. It has somehow turned into a 'central bank' over the years, but that is a question of fact and degree.

HM Government, HM Treasury and the Bank of England are all different parts of the same thing. Why would it make any difference which one of them borrows or prints money to finance public expenditure? Who cares what the book debts between different parts of the government are, it all nets off to nothing.

To cut a long story short, if I need money to pay for my loft conversion, it doesn't make any difference whether I borrow the money in my own name; whether my wife and I borrow it jointly; or whether she borrows it and then lends it on to me. Our total household indebtedness and our total household assets are exactly the same. The only relevant question is this: "is it worth getting a loft conversion done?", that is all.

8 comments:

Random said...

"Why would it make any difference which one of them borrows or prints money to finance public expenditure?"
Correct. It doesn't at all. It is just the EU is full of conservatives who hate the idea of "money printing." If you notice there is quite a bit of unemployment in the EU.
There is no law without enforcement. The EU rules are more like Pirate Rules than anything.
But this combined with ERM/forced fixing the exchange rate to the euro and the SGP completely arbitrary (3%, why?) deficit rules form the EU economic straightjacket designed to rein in government with as many voluntary constraints as possible. The UK got opt outs so it does not matter.

Lola said...

QE = i.e. the shell game, or the game of mirrors

L fairfax said...

" if I need money to pay for my loft conversion, it doesn't make any difference whether I borrow the money in my own name; whether my wife and I borrow it jointly;"
Although it makes a difference to the lender as your credit rating etc would differ.

Mark Wadsworth said...

R, L, yup.

LF, as it happens they wouldn't as the loan would be a small loan to value mortgage and secured on the house.

Either way, the credit rating of UK govt, UK treasury and Bank of England is exactly the same thing because they are the same thing

Bayard said...

"The only relevant question is this: "is it worth getting a loft conversion done?", that is all."

Which question will be conspicuously absent, should "The People's QE" ever become a reality. Cue large amounts of money spent on pointless "infrastructure" projects, like HS2, only designed to increase land values for the lucky few.

Random said...

I don't see any problem with more infrastructure spending so long as there is a land value tax in place. It is not A Bad Thing in and of itself.
So YPP need to lobby for LVT - I will see if Richard Murphy knows about the idea and his views on it.

Graeme said...

given the massive amounts of "infrastructure" spending already happening - Crossrail, the fact that every road I drive down has a hole or coned-off section, the new sewer for London, etc - who is going to do the work? How many of the army of unemployed people can handle mechanical equipment? How many unemployed project managers are there?

Mark Wadsworth said...

B, possibly yes, possibly no.

R, that is the biggest if and we DO lobby for LVT. That's manifesto item one.

G, maybe so, but completely off topic. The topic of the post is in the subject line. In answer to your question, there is a large pool of highly skilled international workers and engineers and managers (including many Brits) who go round the world doing this stuff.