Wednesday, August 1, 2012

Now Germany Needs to Let Draghi Do ‘Whatever It Takes’

by Clive Crook


August 1, 2012

Did Mario Draghi, president of the European Central Bank, announce a big change in monetary policy in his widely reported speech last week? Or was he misunderstood? The financial markets at first hailed a breakthrough. Now doubts have set in.

We’ll know more after Thursday’s meeting of the ECB’s governing council. The euro’s future may turn on what that body decides. Draghi has raised expectations and it’s important that he meets them. If he does, Europe will be taking a big step toward recovery, albeit only one of many that will be needed over the coming months and years.

If the markets decide his bold new departure meant nothing after all, brace yourself. Europe’s financial crisis is about to get worse. Draghi’s pledge that the ECB “is ready to do whatever it takes to preserve the euro” seemed clear enough, and what splendid news that was. Finally, the ECB is willing to act as lender of last resort to Spain and other distressed sovereign borrowers. Draghi wants to revive and extend the bank’s dormant bond-buying program, and he’s pressing Europe’s governments to let him get on with it.

The speech as a whole, though, was ambiguous and puzzling. Parts were barely intelligible. You could read almost anything into what Draghi said. Even the crucial phrase began with the words “within our mandate.” That’s a problem. The ECB isn’t sure from one day to the next what it is required or allowed to do, and the euro area’s governments are divided on the point.


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