I was in the audience exactly a year ago when Mario Draghi, the well-respected president of the European Central Bank (ECB), made his now-famous "whatever it takes" remarks. Twelve months later, this stands out as the boldest and most successful initiative in the history of modern central banking. Yet the durability of the benefits is undermined by Europe's frustratingly slow progress in getting to grips with its growth and employment deficits. In celebrating the one-year anniversary, the West would be well advised to also think in terms of foregone opportunities. And we should constantly remember the millions of unemployed, the alarmingly high joblessness among the young, the struggles that too many face in securing their families wellbeing, and the growing number of retirees that are legitimately worried about their pensions.
The EU is now officially back in recession. Unemployment is rising in all of the nations that have submitted to austerity plans. Even the Germans, who benefit from the rest of Europe's pain because capital flight produces very low German interest rates, are headed for a recession later this year, according to the OECD. Europe's economies are prisoners of Merkel's austerity demands on one side, and the speculative attacks of the bond market on the other. In principle, the ECB could extend unlimited support to government bonds, and take the profit out of speculation. Draghi's latest announcement seems to offer just that, but the austerity conditions render it next to useless.
Thank you Germany, Italy, Spain and, especially, the European Central Bank. They all said enough to provide markets and investors with a tranquil August so far. Will they now be able and willing to pivot from reassuring words to the series of actions required to enable this tranquility to grow deep roots?
If you watched any of the PBS encore broadcast of the Ken Burns documentary, The War, this past week, you have some sense of what kind of a production machine can be energized by government contracts in the face of a depressed economy. There is so much that we could spend that money on -- energy self sufficiency, infrastructure, a smart electrical grid, public transportation, better education at all levels -- all of which would not only create economic activity and jobs, but would make for a more productive economy. But nothing like this is part of the mainstream conversation. If you propose this sort of thing, you are packed off to the Museum of Un-reconstructed Keynesians. White House economists quietly admit that you are right, but you are politically radioactive (even with a Nobel Prize.)
You can be confident that markets will slump again and Spanish and Italian borrowing costs will rise again as soon as investors realize that Draghi, despite his best intentions, can't quite deliver. His bank's board is due to meet Thursday, and the Germans remain adamantly opposed to allowing Draghi to get serious about bond purchases. Draghi, like Bernanke, keeps warning that central bankers can't fix the economic mess by themselves. Europe needs to reverse its austerity policies, to take shared responsibility for dealing with the legacy debt of its weaker members, and to turn the ECB into a true central bank. None of this is likely to happen.