Debate Magazine

Richard Murphy Points out the Futility of Article 123, Lisbon Treaty

Posted on the 21 August 2015 by Markwadsworth @Mark_Wadsworth

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.

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