Tony Yates Profile picture
15 Oct, 22 tweets, 4 min read
I have mixed feelings about the @ecb moving to introduce Green criteria for eligibility of corporate bonds in its QE asset purchase program.
The urgency of climate change mitigation policy gets ever greater, so, on the one hand: good, a new tax on brown [as in not green] activities.
The ECB is saying this because it thinks greening QE is a reasonable reading of the Treaty requirements of it to support the EU's economic policies.
This may be so. But it's uncomfortable for me that they are deciding themselves to introduce this reading, now.
It would be better to have transparent instructions in this regard from EU member states - ideally a Treaty revision that makes it unambiguous.
Maybe one can argue that if that is not feasible, then the ECB using its discretion to realize finally that this should have been a feature all along of its supportive activities is better than doing nothing at all.
But even then, the ECB would not be doing anything that can't be replicated by a simple tax levied by member states on firms in non green sectors.
Moreover, 'Green QE' would constitute a counter cyclical tax on brown activities. It gets higher in slumps as the ECB buys bonds. Is that the right feature of those taxes? My starting guess would be 'constant'.
If the brown tax can't be achieved by governments doing it directly, that says something about political will lacking, and in which case it is even more uncomfortable to use an ECB reading of a hard to revise Treaty as a substitute for that political will.
As views harden about the urgency of piling as much tax as one can on brown firms, [urgency I share btw] it is tempting to think 'fuck them, if they won't do it individually we'll force it on them through this collective device they can't veto'.
After all, in many other ways recalcitrant individual member states are pressured or forced to accept things as part of the EU package that they would not choose to do [trade, property rights, corruption, health and safety, etc].
A worry is that individual member states, who can choose their own candidates for local central bank governor how they please, would then pack the ECB Governing council with those picked for the right views on the climate, and not econ and finance.
As minor matters, it would make me feel even less comfortable if the @ecb was itself deciding what constituted 'green', and what the appropriate borrowing tax was.
This should properly reside with the Environmental arm of the Commission IMO, which should have or develop the technical competence, and has or obtain the political mandate from member states to determine the tax.
But what next? The ECB introducing member state related penalties in QE for rule of law infractions interfering with the judiciary? Bending single market rules? Those would also support EU economic policies.
Greening QE would limit the power of the tool too. Fewer bonds, means a smaller, weaker lever. But this is not a big factor. I don't think QE is a particularly effective lever anyway for macro stabilization. At least not at this point.
Another 2nd order issue, but still worth thinking about, is that Green QE will tax one sort of company finance, but not the two others [equity, banks]. A straight tax on firms levied by governments doesn't affect the relative financing taxes.
Next, the ECB reinterpreting its mandate as instructing it to skew its bond purchases according to regular health and saftey assessments; or how stated companies do on equal opportunities; or how much they spend on continuing adult education for employees. Why not?
I think there is a fundamental misunderstanding by concerted and passionate environmental campaigners that because climate policy in general is so bad, you should green everything you can. Not so!
We don't worry about the ECB's education policy. Or what they think about policing. Or what contribution they are making to EU foreign policy.
The EU superstructure is already - and I say this as an ardent Europhile - straining under many tensions of legitimacy, accountability, multiple levels of imperfect democracy....
The ECB itself is in the highly imperfect position of having to itself interpret a mandate into operational targets. This just adds to the presumed delegated powers of a powerful institution with much discretion whose use [eg in EZ crisis] attracted much criticism.

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More from @t0nyyates

17 Oct
OK, I'll bite. This is an excellent question, not just a genuine one.
There is not a mechanism in place to write off most of each other's debt. There doesn't need to be.
Not all governments are borrowing, for starters. The ones that are are borrowing from their citizens, and foreign citizens, who have stuff to lend.
Read 33 tweets
17 Oct
What would be a short term crisis business plan to get test/trace/isolate working again?
Whatever the behind the scenes qualities or lack of them, I think it would have to involve the letting go of Dido Harding, and the termination of the existing contracts to Serco. To instill confidence that there was a recognition a fresh start was needed.
Never having had a business, or written a plan, this task is not my forte. Also complicated by a lifetime, until now, of lacking curiosity in logistics.
Read 5 tweets
17 Oct
Relative to where the government was at the time of the first lockdown in March, it seems much less enthusiastic about 1) doing what is necessary to stop the virus spreading and 2) providing compensation for those affected and to encourage them to comply with new meaures.
This is perplexing. The opposite should be the case. Relative to March, we are in some ways in a much better position to accomplish this.
To begin with, even at this late stage, things are not as bad as they had been allowed to get by the 23 March. It therefore would not take such draconian measures, or for so long, to get control again.
Read 18 tweets
16 Oct
It’s a cruel irony that when policy makers most need high quality data - in the midst of an economic crisis - they are least likely to have it.
New things happen to people [covid] and you have to collect data on them from scratch, developing new systems and standards.
Government measures to react to the crisis affect national accounts and labour market status, close markets for goods, confusing income, employment, unemployment, welfare and price data.
Read 4 tweets
15 Oct
Brilliant letter. Since the optimal policy response to a pandemic is also an economic policy, and not just a health policy, I hope that there might be a consensus forged across both epidemiology and economics too. I for one concur with the prescription in this text.
Really, the matter also draws in political scientists. Because both the prescribed poilcy and the do-nothing counterfactual entail novel and dramatic political-economic forces.
The do-nothing policy envisages a hefty multiple of the circa 60k deaths we have seen; we talk often about how the financial crisis scarred attitudes towards the status quo - how would 200k deaths leave its imprint on politics and civil society?
Read 8 tweets
30 Aug
1. Covid has shown us that we need a bigger, better, state. 2. Taxes will eventually have to rise to pay for that.
3. Many other economies with high GDP/head function well with higher taxes, larger states, so 'high tax damages business', is, to a point, a canard.
4. Macro stabilisation priorities mean that it is too soon to be thinking of raising taxes yet.
5. Not the case here, but often on the right the 'high tax will damage business' is just cover for 'small state means the rich keep more for themselves'.
Read 5 tweets

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