Thursday, September 6, 2012

Mario Draghi’s Big Moment, Continued

September 6, 2012

Europe emerges from its summer torpor with untapped disasters in waiting.

On Thursday, attention turns to Mario Draghi, the president of the European Central Bank, and the plans, if any, he will announce to help manage the European Union’s financial crisis. Next, on Sept. 12, Germany’s constitutional court will rule on the legality of the European Stability Mechanism, the euro area’s new permanent bailout fund, and the fiscal pact that curbs government deficits. If either event goes badly, watch out.

In July, Draghi aroused expectations that he has so far been unable to meet when he promised the ECB would do “whatever it takes” to defend the euro system. This was seen as a pledge of unlimited bond buying aimed at lowering the long-term interest rates that Spain, Italy and other distressed sovereign borrowers must pay.

We have been recommending such a course for months. But it turned out Draghi’s promise was less a binding commitment to the markets than an attempt to nudge dissenters on the ECB’s governing council -- notably, Bundesbank President Jens Weidmann, who opposes an unorthodox bond-buying program on principle -- to fall into line. They didn’t.

Thursday will show whether Draghi has finally reached agreement with the dissenters, so that some kind of compromise effort can proceed, or whether he has to play for time yet again.


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