Niall Ferguson for the euro?

Niall Ferguson

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I see Niall Ferguson, usually a critic of the EU project, seems implicitly to support a monetary role for the European Central Bank, if I read his recent Newsweek column correctly: "The Fed's Critics Are Wrong: We Need to Avert Depression" (December 5, 2011). In that column, he supports monetary easing:

In normal times it would be legitimate to worry about the consequences of money printing and outsize debts. But history tells us these are anything but normal times.

Ferguson isn't just speaking about the US Federal Reserve:

[A]larmingly, German Chancellor Angela Merkel reiterated her opposition to monetary easing as well as to the creation of common "euro bonds." Her latest proposal is that each European state should set up a national debt-reduction fund.

In Ferguson's view, the politicians are setting out to repeat a bad stretch of history:

People often forget that the Great Depression . . . [had] two halves. The first half was dominated by the aftermath of the 1929 U.S. stock-market crash. The second half, which made the depression truly "great" in both its depth and its extent, began with the European banking crisis of 1931. To understand . . . you need to know this history . . . . [and] read Milton Friedman and Anna Schwartz's Monetary History of the United States, the single most important book about American financial history ever written . . . . [as well as] Barry Eichengreen's Golden Fetters: The Gold Standard and the Great Depression . . . . Friedman and Schwartz argued that the stock-market panic of 1929 turned into a depression because of avoidable errors by the Fed. Instead of easing monetary policy by cutting interest rates and buying bonds, the Fed tightened. The result was a catastrophic chain reaction of bank failures, which caused the money supply to contract by approximately a third, and economic output with it. Eichengreen's book tells . . . [how] the rules of the gold standard forced central banks to transmit the American shock around the world. Then an increasingly polarized political atmosphere made it impossible to reach agreements about the enormous war and reparations debts that weighed down European governments. Despite multiple international conferences, the global financial system collapsed. Countries recovered only when they abandoned the gold standard and focused on job creation.

Not only are political leaders like Merkel opposed to monetary easing, some politicians think that a return to the gold standard would provide 'real' money. Ferguson is relieved that central bankers understand economic history:

We are indeed fortunate that at least the world's leading central bankers have studied this history: not only Ben Bernanke but also the heads of the Bank of England, the Bank of Canada, and the European Central Bank.

But he worries about the world's political leaders:

The bad news is that so few politicians and voters understand what . . . [the bankers] are trying to do, or why. The even worse news is that central bankers by themselves may not be able to stop our depression from turning great.

Ferguson doesn't come out and directly state it, but if I read him right, he's saying that the euro needs to be saved and the only way to do so is to give the European Central Bank power over the eurozone's monetary policy.

An EU critic coming to the EU's rescue . . .