Mario Draghi has promised the moon. The European Central Bank’s council had better deliver on his pledge this week. If it does not, the crisis will surely escalate out of control in August or soon after.
We are beyond the point where a quarter point rate cut will achieve anything. Nor will it help to launch a fresh round of “temporary and limited” bond purchases – to use the self-defeating language that Mr Draghi is forced to utter.
The only issue that matters at this late stage is whether Germany is willing to let the ECB step up to its responsibility as a global central bank after two years of ideological posturing and take all risk of sovereign default in Spain and Italy off the table – which it can do easily enough once it stops playing politics and obeys the “financial stability” clause (Article 127) of the Lisbon Treaty.
I don’t know – I feel as though I am reading about an alternative parallel universe, where financial problems can be sorted out by a government or even an inter-government bank declaring that it will support something “at any cost”. The British government tried that before being forced to ingnominiously exit the exchange rate mechanism and allowing the pound to float free of European currencies.
Yet, time and time again we are told that the answer to everything is for Germany to borrow, for the ECB to borrow, for the Planet Earth to borrow, or print money, or issue Euro-upside-down-trouser-bonds, or whatever. No one will tackle the underlying problem of being tied into a currency system which does not allow the economies of member states to adjust as they would with a freely floating currency to correct the imbalances. And in the final analysis, all issues like capital flight are about confidence in the viability of an economy and its trading conditions, and does that not include currency issues?
Euroland is a strange place at the moment.