As Europe “Reinterpreted” the Maastricht Treaty to Avoid Catastrophe, Ben Bernanke Launched His “QE-Infinity” Policy

Towards avoiding the feared 2nd Lehman crisis, which incidentally would sink the re-election prospects of their commander-in-chief, President Obama, Treasury Secretary Geithner and Federal Reserve Chair Bernanke were prepared to put US taxpayer funds on the line by way of swaps with the ECB even though under some scenarios the ECB might itself become insolvent. As part of the deal Chancellor Merkel was persuaded to put at stake a much larger amount of German taxpayer funds, either directly via the new EU bail-out entities, the European Stability Mechanism (ESM) or European Financial Stability Facility (EFSF), or indirectly by standing (albeit to an unknown extent) behind the ECB’s vast loan programs. The LTROs [Long-Term Refinancing Operations] were highly dubious in terms of constitutionality — with critics arguing that the Maastricht Treaty specifically banned such bail-out operations. What followed was even more dubious, and to such a degree that we describe it here as a coup against the monetary constitution in the Treaty.

This coup played itself out in Summer and Autumn 2012 as the Spanish government debt market plunged and another crisis of survival erupted in EMU, this time with the centre of the storm in Spanish banking collapse. ECB Chief Mario Draghi, buttressed by the US Treasury Secretary, persuaded German Chancellor Merkel that the only way to avoid ‘catastrophe’ in Europe would be to ‘re-interpret’ the Maastricht Treaty so as to allow direct monetary financing of weak sovereigns, albeit subject to certain conditions. Simultaneously Chairman Bernanke launched his QE-infinity policy setting no time or quantity limit to massive monetary base expansion.

—Brendan Brown, Euro Crash: How Asset Price Inflation Destroys the Wealth of Nations, 3rd ed. (Houndmills, UK: Palgrave Macmillan, 2014), 217-218.