IREF headline

Published on 18 August 2022 and first published as an IREF online article on 3 August 2022

The press releases following the meeting of the ECB Governing Council (GC) on Thursday 22 July 2022 are masterpieces of uninformation in which the ECB attempts to gaslight its stakeholders, making them question their own perception of reality. It is ironic that the ECB should switch up its gaslighting just as deliveries of real gas through the Nordstream 1 pipeline are falling and officials in Hanover are having to shower in cold water.

This article analyses the disparity between the substance of what was announced and the language put around it by the ECB, mainly in the press release on its Monetary Policy Decisions,[1] with a summary about the ‘Transmission Protection Instrument’ or ‘TPI’.[2] The ECB’s gaslighting technique is to employ a pseudo-technocratic English, when almost none of its officials and GC members and few other stakeholders are native English speakers: this technique lends an impression of depth and plausibility to its superficial and untenable utterances.

The GC meeting raised all three of the ECB’s interest rates by 0.50%, resulting in none of them now being nominally below 0%, although they are over 8% negative in real terms.[3] The ECB stresses its supposed mandate to maintain price stability, as if price stability existed now. Eurostat issued a ‘Flash estimate – June 2022’ under reference 73/2022 – 1 July 2022 with the headline ‘Euro area annual inflation up to 8.6%’, flatly disproving that ‘price stability’ exists.[4] A real negative interest rate of over 8% destroys the buying power of savings held in the European common currency whose value the ECB exists to protect: the point of saving is to increase the buying power of money over time. ‘Price stability’ enables that. The ECB gaslights that its policies enable an increase of the buying power of a saved euro over time, when they reduce it.

These extracts from the press release on Monetary Policy Decisions exemplify uninformation:

Para/ lineECB statementIntended meaningWeakness
1.1‘strong commitment to its price stability mandate’That its actions are all aimed at price stabilityThe word ‘strong’ is already implied by ‘commitment’; its inclusion is tautologous, an attempt to counter any impression that its ’commitment’ might be either weak or non-existent
1.2‘took further key steps’That it has already taken numerous steps, some of them importantThese are its first steps. ‘Key’ is superfluous, an attempt to create a sense of activity and steerage of events
2.1‘appropriate to take a larger first step’Attempt to convey decisivenessContradicts 1.2 where the ECB inferred this was not the first step. ‘Larger’ is misused as the ECB has taken no other step that this one is larger than
2.5‘strengthening the anchoring of inflation expectations’Attempt to convey control over inflation, and not just over expectations of where inflation might goInflation is the indicator of relevance to businesses and consumers, not expectations of inflation. The ECB attempts to inflate the sense of its control over events. The phrase is meaningless, despite having an impressive frame and using words which are recognisable individually. An anchor is already strong: how can it be strengthened? What does the ‘anchoring of inflation expectations’ even mean? How can it be measured, as strong, as stronger than it was before, as weak, as weaker, or as moderate?
2.6‘ensuring that demand conditions adjust to deliver its inflation target in the medium term’Implies that the ECB policies can control demand, and that this control of demand will result in lower inflation. The certainty inferred by the use of the word ‘ensuring’ serves to bypass questioning of the premises in the ECB’s logic chainThe ECB has loose control of demand anyway, and it is not a given that its cutting of negative real interest rates by 0.50% will have any effect on the drivers of demand that are causing inflation (if indeed it is demand that is causing inflation rather than shortage of supply or its own actions), but the ECB does not see it as necessary to explain why its premises are valid, or why the change it has made will cause the effect it describes
3.2‘the frontloading today of the exit from negative interest rates’Attempt to create a sense of acceleration, of the ECB getting ahead of the curveThe phrase is pretentious by being framed in a technical manner when simpler words would do – ‘we have changed interest rates more than we said we would do last month, and none are now less than 0%’. The simple version is more accurate but sounds less impressive
3.3‘allows the GC to make a transition to a meeting-by-meeting approach to interest rate decisions’Attempt to create a sense of dynamism, of a step change to a previous approachWhen did the GC ever make such a decision except in a meeting? Its constitution states that the GC must meet, and that it is in those meetings that Monetary Policy Decisions are made
3.2 and 3.3‘the frontloading today of the exit from negative interest rates allows the GC to make a transition to a meeting-by-meeting approach to interest rate decisions’Conveys a sense of progress, without explaining what has changed and why that represents progressWhy does making a bigger decision now cause a step-change to the future decision-making? The second clause is a non-sequitur to the first. As a result the phrase in its entirety has no import
3.4‘the GC’s future policy rate path will continue to be data-dependent’Strengthens sense of control and of an anchoring of decisions upon realityWhen did bodies like the GC ever make decisions not anchored in data? The phrase implies a direct causative effect of Input Data A > Output Decision B. Is this how the GC works? The role of a GC is surely to select which data to consider and what weight to give to different elements in the data. The ECB’s phrase is at the same time self-evident and meaningless

The GC also approved a ‘Transmission Protection Instrument’ or ‘TPI’, another bond-buying mechanism to go alongside the Asset Purchase Programmes and the Pandemic Emergency Purchase Programme. It is a further emergency measure, belying its framing by the ECB as part of normalisation: the first paragraph of the TPI press release wrongly positions the TPI within ‘as the Governing Council continues normalising monetary policy’. The GC’s interest rate change is its first and only move in a direction of normalisation: the TPI moves in the opposite direction.[5]

The TPI is mobilizable in circumstances that will never occur. There must, on the one hand, be observable ‘unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area’, whatever that means, but at the same time the member state whose bonds have risen in yield as a result must show no characteristics of financial distress.

The get-out is that the absence of financial distress will be characterised in terms of the EU’s own criteria and reference points, as if these were objective: (i) ‘compliance with the EU fiscal framework’ even though important elements in this framework have been suspended; (ii) ‘not being subject to an excessive deficit procedure’; (iii) ‘absence of severe macroeconomic imbalances’; (iv) ‘fiscal sustainability’; (v) ‘sound and sustainable macroeconomic policies’.

The ECB’s portraying its own frame of reference as if it was objective is another example of gaslighting, supporting the overall gaslighting that is the TPI. The premise of the TPI cannot exist: free financial markets do not sell off one issuer’s bonds within an asset class – but not other issuers’ bonds – for reasons totally disconnected with the one issuer’s condition. They sell off either an entire asset class (like fixed interest bonds, because interest rates are increasing), or a country (like Venezuela, because of political risk), or a single issuer (because of its financial condition).

TPI cannot exist if the frame of reference is objective, but it can exist if it is subjective. Either, then, the ECB’s criteria and reference points are subjective ones disingenuously dressed in pseudo-objective terminology – with the ECB knowing how they can be manipulated so as to demonstrate an absence of financial distress when others would prove its presence – or the TPI does not exist at all. The ECB’s making out that the TPI exists and is subject to objective criteria is gaslighting: creating an alternative reality.

The real gaslights may be going down all over Europe, but in the ECB office the gaslighting operation has been stoked up to a whole new level.

[1] accessed on 30 July 2022

[2] accessed on 30 July 2022

[3] The ‘real’ interest rate is the nominal interest rate less the rate of inflation

[4] Eurostat document reference 2-01072022-AP-EN

[5] Reinvesting maturities out of the Pandemic Emergency Purchase Programme and not raising the programme ceiling do not qualify as normalisation actions: they are the continuation of an emergency response. Normalisation would mean closing the programme and selling off its assets