but this won’t save the useless euro
If the eurozone is to be saved, it will have to be by its political leaders -
not its central bankers
COLUMN LAST UPDATED AT 08:41 ON FRI 7 SEP 2012
AFTER nearly three years of non-stop crisis we have had so many
plans
to save the euro that it is easy to think one more won’t make much
difference.
Yesterday,though, it was the turn of Mario Draghi, the President of
the
European CentralBank, to step up to the plate, and expectations
were
high.
plans
to save the euro that it is easy to think one more won’t make much
difference.
Yesterday,though, it was the turn of Mario Draghi, the President of
the
European CentralBank, to step up to the plate, and expectations
were
high.
The markets, at least, were not disappointed. Unlike even mighty Germany,
the ECB is the one participant in this troubled saga which really does
have unlimited financial firepower.
In theory, it could print enough money to buy enough bonds issued by the likes of Spain,
Italy and Portugal to bring the European debt crisis to a halt, virtually overnight.
the ECB is the one participant in this troubled saga which really does
have unlimited financial firepower.
In theory, it could print enough money to buy enough bonds issued by the likes of Spain,
Italy and Portugal to bring the European debt crisis to a halt, virtually overnight.
In the event the ECB did not go that far, but it got quite near. To bring the borrowing costs
of
the
most troubled euro members back to affordable levels, the Draghi plan will, if necessary,
provide
a “fully effective backstop”to the single currency by pledging to buy unlimited quantities of
troubled
bonds.
of
the
most troubled euro members back to affordable levels, the Draghi plan will, if necessary,
provide
a “fully effective backstop”to the single currency by pledging to buy unlimited quantities of
troubled
bonds.
RECENT COLUMN
But while the Draghi plan changes the game, it does not follow that it will necessarily save it.
One sign of trouble ahead was that while 16 to one might sound like a thumping majority,
the l
one dissenter was the German Bundesbank president, Jens Weidmann.
One sign of trouble ahead was that while 16 to one might sound like a thumping majority,
the l
one dissenter was the German Bundesbank president, Jens Weidmann.
Germany may have just one vote on the board like everyone else, but all its eurozone
partners
accept that it is very much primus inter pares. Nor are they under any illusions about its deep
aversion
to printing money,especially if it is to bail out profligate southern Europeans.
partners
accept that it is very much primus inter pares. Nor are they under any illusions about its deep
aversion
to printing money,especially if it is to bail out profligate southern Europeans.
Thanks largely to Weidmann, the help that Spain, in particular, so desperately needs will
come with
strict conditions, in the form of more austerity supervised by outside inspectors as in
Greece.
For Spain, that may yet prove a humiliation too far. And even if the Spanish Prime
Minister,
Mariano Rajoy, swallows his pride and accepts intrusive Greek-style supervision, it
could well
prove self-defeating.
You don’t have to be an economist to realise that if the only way to lower interest rates
is to
shrink your economy ever further, when unemployment is already nudging 25 per cent, the
game
is unlikely to be worth the candle. Yet that is what Weidmann is determined to prescribe
for
Spain, and Draghi is apparently committed to administering.
come with
strict conditions, in the form of more austerity supervised by outside inspectors as in
Greece.
For Spain, that may yet prove a humiliation too far. And even if the Spanish Prime
Minister,
Mariano Rajoy, swallows his pride and accepts intrusive Greek-style supervision, it
could well
prove self-defeating.
You don’t have to be an economist to realise that if the only way to lower interest rates
is to
shrink your economy ever further, when unemployment is already nudging 25 per cent, the
game
is unlikely to be worth the candle. Yet that is what Weidmann is determined to prescribe
for
Spain, and Draghi is apparently committed to administering.
The other big question mark is moral hazard. What happens if Spain or another country
takes
the ECB’s money but then refuses to stick to its agreed austerity programme?
The ECB can paper over the cracks, and with enough moneyand determination it may be
able to
do so for some time yet. But it has never suggested that it can provide a lasting solution
to a
country’s debt crisis, let alone the wider political problems of the euro.
takes
the ECB’s money but then refuses to stick to its agreed austerity programme?
The ECB can paper over the cracks, and with enough moneyand determination it may be
able to
do so for some time yet. But it has never suggested that it can provide a lasting solution
to a
country’s debt crisis, let alone the wider political problems of the euro.
Yet the longer the crisis drags on, the more the politicians’ room for manoeuvre shrinks.
Sometimes it seems as if the only thing the two sides of the eurozone still have in common
is that
both are paying a very high price for a currency that does not work.
Sometimes it seems as if the only thing the two sides of the eurozone still have in common
is that
both are paying a very high price for a currency that does not work.
In the solvent North, it is not just the Bundesbank that is losing patience, so are the voters
across a
swathe of countries stretching from the Netherlands right across to Finland. In the bankrupt
South,
they can’t take much more and their leaders know it.
across a
swathe of countries stretching from the Netherlands right across to Finland. In the bankrupt
South,
they can’t take much more and their leaders know it.
One has to admire Mario Draghi. To get as far as he has, in the teeth of ferocious opposition
from the German economic and political establishments, must have required huge diplomatic and
legal guile.
But with the best will in the world, the most that can realistically be hoped of his plan
is that it will
buy some extra time for Europe’s dithering and fractious politicians at long last to get
their act
together.
from the German economic and political establishments, must have required huge diplomatic and
legal guile.
But with the best will in the world, the most that can realistically be hoped of his plan
is that it will
buy some extra time for Europe’s dithering and fractious politicians at long last to get
their act
together.
Read more: http://www.theweek.co.uk/eurozone/euro-debt-crisis/48882/you-have-admire-draghi-won%E2%80%99t-save-useless-euro#ixzz25mneEz29
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