Italy, France say ‘we don’t want Jens Weidmann to become ECB president’…

In many ways ECB is an ironical central bank.

The central bank is based in Germany and was designed as a replica of Bundesbank. Why? Because no other central bank had a reputation as the formidable German entity. So, if the European countries wanted to give up their mon policy to ECB, they said it better be like Bundesbank. Otherwise again we have a non-credible central bank creating all sorts of problems. Apart from the design, even the location was chosen as German as one always worried over political influence elsewhere. So much so both the central banks are located in Frankfurt within a 4 km distance.

Now, here comes the twist. Given strong German resemblance, one would impagine it is best to let German head the central bank. But no German has headed the central bank until today. Yes, one German has always been on the board but that is just about it. Earlier the German was a chief economist (Otmar Issing, Jurgen Stark). But even that is not the case today as Sabine Lautenschläger, who is a law person is on the board. Infact Axel Weber head of Bundesbank came close to being ECB chief but resigned from Bundesbank amidst lots of controversy.

So, the chief of ECB was first a Dutch, then a French and currently an Italian. They have kept Germany out as the fear remains that with a German not even little political maneuvering will be  possible. With the non-German as a head, one can expect some sympathies in case of a slowdown.

This was tested during the current crisis. Both Weber and Stark did not favor any monetary stimulus by ECB and had runs with the ECB leadership leading to resignations. Post Stark, it became easy for Draghi to take control and convince others for monetary stimulus. However, Bundesbank under the new chief Weidmann continued to oppose the policies.

As Draghi’s term is ending in 2019, the speculations have started early. The Italians and French are again opposed to having Weidmann as President:

In its new edition, Germany’s Der Spiegel magazine reported Friday that Italy and France would object to installing Bundesbank chief Jens Weidmann as head of the European Central Bank after the end of Mario Draghi’s term in 2019.

It said government representatives from both nations had told German Finance Minister Wolfgang Schäuble that they had nothing against a German at the helm of the ECB, “but it must not be Jens Weidmann.”

The report elaborated that southern eurozone nations feared current pragmatic and flexible crisis management measures such as the ECB’s huge bond-buying program as carried out under Draghi would no longer be possible under Weidmann.

While Schäuble said in May he would not take part in any debate about Draghi’s successor, numerous media reports had highlighted his and German Chancellor Angela Merkel’s likely push for Weidmann to become the fourth guardian of the euro currency, after a representative from the Netherlands, France and Italy.

But there may be a whole bunch of contenders for the job of ECB president, among them Bank of France Governor Francois Villeroy de Galhau.

It cannot be taken for granted, though, that the fight for the post will include Jens Weidmann at all. A spokesman for the Bundesbank on Friday quoted him as saying he enjoyed his current job and would certainly stand ready for another term beginning May 2019, should he be asked to do so.

Weidmann has headed the German central bank since 2011.

Even if it is premature speculation, the European leaders will try hard to keep a German central banker heading the Board.

So much so for the ironies…

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Does caste discrimination lead to lower rural lending?

Interesting paper by  Sunil Mitra Kumar  (King’s College London) and Ragupathy Venkatachalam  of University of London.

They say caste discrimination does not play as big a role in bank lending (based on their data set):

In recent research, we examine the role of caste in rural bank lending (Kumar and Venkatachalam 2016). We are especially interested in examining whether banks discriminate on the basis of caste, and in understanding potential mechanisms behind any caste-based patterns in access to loans. Through these questions, we indirectly address a larger question concerning the effectiveness of affirmative action policies in the financial sector. In a departure from the literature on this issue, we study both the decision to apply for a bank loan, as well as whether that application is subsequently approved by the bank. In brief, we find that access to bank loans is stratified by caste, but that the major proportion of these differences is due to differences in loan application rates. However, we do find evidence of some discrimination against borrowers belonging to Scheduled Tribes (ST) when it comes to loan approvals.

……

Our finding that there is little discrimination – and none against SCs – is quite positive, even though the 5-7% lower approval rates for STs likely due to taste-based discrimination are a cause for some concern. But our finding that loan application rates differ significantly across caste groups in a way that mirrors their disadvantage is less positive. While we cannot say for sure, it suggests that historical disadvantage and possibly discrimination are still at play in shaping people’s expectations. It is possible that farmers who do not apply to banks find their credit from informal sources, but this is not encouraging either because such sources offer credit at very high rates. That said, a further set of results in the paper confirm that small farmers – those who own less than five acres of land and whom the RBI encourages lending to – have smaller inter-caste differences in application rates. This too is a positive finding because it suggests that this encouragement has trickled down to the level of expectations too, and has muted caste-based differences in application rates as a result. Caste and credit is not such a woeful tale per se, but more remains to be done. 

These studies can hardly be generalized. An experiment in a different setting could show the opposite results..

Dominant sect in economics today: There are none so blind as those who will not see.

Prof Steven Keen hits out at mainsteam economists for choosing to ignore obvious evidence:

How Netherlands has become an agricultural giant by showing what the future of farming could look like.

Interesting piece and stunning pictures in Nat Geo’s Sep edition:

In a potato field near the Netherlands’ border with Belgium, Dutch farmer Jacob van den Borne is seated in the cabin of an immense harvester before an instrument panel worthy of the starship Enterprise.

From his perch 10 feet above the ground, he’s monitoring two drones—a driverless tractor roaming the fields and a quadcopter in the air—that provide detailed readings on soil chemistry, water content, nutrients, and growth, measuring the progress of every plant down to the individual potato. Van den Borne’s production numbers testify to the power of this “precision farming,” as it’s known. The global average yield of potatoes per acre is about nine tons. Van den Borne’s fields reliably produce more than 20.

That copious output is made all the more remarkable by the other side of the balance sheet: inputs. Almost two decades ago, the Dutch made a national commitment to sustainable agriculture under the rallying cry “Twice as much food using half as many resources.” Since 2000, van den Borne and many of his fellow farmers have reduced dependence on water for key crops by as much as 90 percent. They’ve almost completely eliminated the use of chemical pesticides on plants in greenhouses, and since 2009 Dutch poultry and livestock producers have cut their use of antibiotics by as much as 60 percent.

 

The seven sins of economists..

Pramit Bhattacharya on the 10th anniversary of sub-prime crisis points to 7 sins of economists:

 

• Sin 1: Alice in Wonderland assumptions
• Sin 2: Abuse of modelling
• Sin 3: Intellectual capture
• Sin 4: The science obsession
• Sin 5: Perpetuating the myth of ‘the textbook’ and Econ 101
• Sin 6: Ignoring society
• Sin 7: Ignoring history

Given the number of omissions and assumptions, one wonders what does the subject include?