Magnus, G. (2014) “The ECB and Sisyphus: it won’t be finished unless it does QE“, Pieria Online, 09 June.
Mario Draghi, 5th June: “Are we finished? The answer is no… within our mandate, we’re not finished yet.”
After the announcements made following the ECB’s June meeting, we hope this wasn’t an idle remark from the President because the ECB will almost certainly have to come back and do more to exorcise the risk of deflation in Europe. He and his colleagues certainly went an extra mile to try and stimulate bank lending in the Eurozone, but this is neither here nor there. Yes, it is important to regulate and repair the banking system, and to ensure that they are able to play a role in supporting sustainable economic recovery. But alone, the ECB’s lending policy strategies are akin to repeating the task of Sisyphus. Nothing short of QE will fulfill the ECB’s role of supporting an economic recovery that it is largely the job of governments and the Commission to deliver.
Why then the mostly positive and congratulatory response to the ECB’s latest monetary policy initiatives? Most commentators and analysts welcomed the ECB’s measures as going beyond expectations, and maintained that the ECB deserved still to be taken seriously with regard to ‘whatever it takes’. We can hope these people are right but the ECB still hasn’t deployed the instruments that the Eurozone economy requires, and lacks the political room for manoeuvre, which is open to its peers. Its cheerleaders overstate its capacity to restore economic functionality to the Euro system but it hasn’t yet acknowledged why the risk of deflation haunts the Eurozone, and what the ECB can and should do about it, and what it can’t, i.e. the function that QE can play, and what the fiscal and governance responsibilities of European governments and Eurozone institutions, including the Commission, are, and where they are falling short…
Relevant posts:
- Merkel, W. (2014) “Failing Union Of Capitalism And Democracy Fuels Rise In Inequality“, Social Europe Journal, 03 June.
- Varoufakis, Y. (2014) “How should the ECB enact Quantitative Easing? A proposal“, Thoughts for the post-2008 World Blog, 19 May.
- Merler, S. (2014) “Shrinking times – ECB excess liquidity falls below €100 billion”, Bruegel Think Tank, 24 April