With President Mario Draghi out in front, the European Central Bank announced its new bond-buying program. The organization said the “sky is the limit.” It will purchase whatever sum of sovereign paper that is necessary to keep the rates that financially weak nations must pay at reasonable levels — if those nations ask for the aid. The stock and currency markets reacted positively, but the enthusiasm was muted give the possible titanic impact of the action.
If Draghi’s decision, taken somewhat against the objections of Germany, is as important as he believes it is, the ECB leader will go down in history as the man who saved the European Union from disintegration.
Experts began to look for holes in the plan right away. Some troubled nations will not ask for aid because the asking may signal to international capital markets investors that these nations are desperate. And the Draghi plan will be drowned by the structural financial problems of the region. No amount of bond buying will much reduce the deficits, the recessions or the debts of the countries that are falling apart because of the weight of years of flawed governing, economic inefficiency and corruption.
But Draghi’s admirers say he has bought the region time — time to approve and create the European Stability Mechanism which, along with IMF money, could build a $1 trillion cushion of bailout money. Maybe some of that money will be used for stimulus packages for Spain or Greece. That could be blocked by Germany, too.
No single, credible economist believes any of Europe’s weakest nations will be out of recession next year, or the year after. These countries will have to be supported by their neighbors through one means or another. Among those means certainly will be hundreds of billions of dollars in aid.
Draghi cannot provide any of that bailout help. However, his actions appear to have given the region’s leaders a measure of resolve they did not have before, which is based on the ECB’s actions as being the first in a chain that will salvage the region’s union. Draghi’s decision received almost universal support among these leaders. And that support may be enough to convince skeptics that the European Union will not fall into pieces.
Douglas A. McIntyre