This week, the President of the ECB should end the debate on bond purchases when he unveils the roadmap of the European Central Bank. In his standoff with the Bundesbank, Mario Draghi has used all his authority to save the single currency. And he has distinguished himself by his fervour.
On the euro front, the autumn rentrée into political activities following the summer holidays has a name, and just one: Mario Draghi. The man will not swerve, we can be sure, from that elegantly crooked smile and courtesy that is his way of showing calm and serenity in heavy weather. Now, more than ever, the future of the single currency is in the hands of the President of the European Central Bank (ECB). It is rather reassuring. This Italian is a true European – and, these days, that species is very rare indeed among the leaders of the EU countries.
Last week in the German weekly Die Zeit M. Draghideclared that he was ready to take "extraordinary measures" to save the euro. Clearly, the ECB will resume a program to buy Treasury bonds to come to the aid of the two major EU countries that are finding it hardest to get financing on the markets, Spain and Italy.
He's right. Madrid and Rome have taken courageous decisions to tackle some of the deep pathologies affecting them, and Italians and Spaniards are paying a high price for these plans for drastic fiscal consolidation and structural reforms. The financial markets, however, taking little notice, are continuing to demand exorbitant interest rates on government bonds from these countries.
The eurozone is being undermined by this, and the penalty thus imposed on two of the largest economies of the 17 is adding to the depressing atmosphere in Europe – this backdrop of high unemployment and anaemic growth. Given the efforts made by the two countries, the spread in the rates on their sovereign debt and that of Germany is irrational and has no serious macroeconomic foundation. In the end, the differential is even the negation of a single currency.
Bundesbank purists still grumbling
Markets have confidence only in the ECB. In betraying his intentions, Mario Draghi has salvaged the summer: rates did ease on Spanish debt, and especially on Italian debt. This Thursday Mr Draghi should clarify his plan for intervention. Perhaps though he will wait one more week, for the decision that is to come down from the German Constitutional Court on September 12 that will decide on whether the financial rescue fund of the 17 states – the European Stability Mechanism – complies with German Basic Law.
Mr Draghi has the support of German Chancellor Angela Merkel and French President François Hollande, who came a little closer over the summer. The purists at the Bundesbank are the only ones grumbling and about the risks of inflation. If they have nothing to offer to keep Spain and Italy from sinking, though, let them keep quiet!
Mr Draghi is imposing a strict conditionality on the interventions by the ECB. The states should carry on with their reforms. Because it will save them, the governments of the 17 states owe it to the Italian to carry out the rehabilitation of the architecture of the euro. It is urgent to complete the fiscal pact and move on to a banking union. It should not be said one day that the sole statesman of the region was the head of the ECB!
Dangerously out of sync…
“Do Europeans live in the same space-time in Paris, Brussels and Berlin? Listening in on the corridors of power of each of these three capitals in turn, one is tempted to wonder”, remarks La Tribune.
The economics daily notes that in France “the recently elected left-wing government is slashing away at the ratification of the EU budget”, while “in Brussels no one is talking about the adoption of the Treaty ... but of its implementation and the follow-ups it could have.” In the meantime in Germany, “the month of September is to be marked by the launch of a drive for a Convention to reform, on a large-scale this time, the functioning of the European Union.”
“To sum up,” the Tribune concludes, “Paris sees this return to the bustle of autumn after the summer lull from the standpoint of 2011, Brussels from 2012 – while Berlin has already moved on to 2013. The lack of synchronisation is obviously dangerous.”