Mario Draghi Provides the Right Analysis, But the Wrong Solution

Mario Draghi, the President of the European Central Bank, has said that the eurozone faces “disintegration” and that the eurozone’s set up is “unsustainable unless further steps are taken.” The comments made to the European Parliament betrayed a frustration Draghi has been fostering for the lack of political will paralyzing Europe. It is refreshing to hear someone from the European financial establishment admit that the survival of the euro is not some historical inevitability. For too long European politicians have been willing to rely on bailouts from the ECB rather than engage is meaningful fiscal reforms. Unfortunately, while it is refreshing to hear Draghi break the europhilic taboo, the implementation of his own recommendations would diminish national autonomy and increase the democratic deficit.

Draghi’s comments come as Spain’s economic situation worsens and replaces Greece as the epicenter of the European crisis. The situation in Spain is so serious that the government had to deny that an IMF bailout was being considered. While Mediterranean governments have failed to tackle their own problems, Draghi’s attack on inaction was a poorly disguised glare in Germany’s direction. 

For some time the idea of an ever closer fiscal union has been proposed as a possible solution to the crisis savaging Europe. Without unity in the banking sector, it is argued, Europe will not be able to recover with the eurozone intact. So far Germany has resisted calls for such an ever-closer union. It looks unlikely that the Germans will change their mind on some sort of banking union, although Merkel has said that there should be no taboos when dealing with the current crisis. A move towards closer European integration and union is largely to blame for the current crisis; there is no reason to think that further integration would somehow help.

Recent polling indicates that the pro-bailout Greek party, New Democracy, and the hard-left anti-austerity party, Syriza, are neck-a-neck at the polls. No one knows what the outcome of this month’s Greek election will be or how long the euro will survive afterwards. What should be worrying the people of Europe more than a Greek exit of the eurozone is what sort of union will be in place afterwards. As hard as it might be to believe, many in Europe still think that the best way to avoid these sorts of crises is an increase in government, regulation, and a unified banking sector. 

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  • R C Dean||

    the implementation of his own recommendations would diminish national autonomy and increase the democratic deficit.

    Basically, the euros have a choice. They can either have a single, unified currency, or they can have national sovereignty. But you can't have both.

    Anonymous Reason writer, I think you are being red-herringed with all this jabber about a "banking union" and what-not.

    The issue here is whether nations will retain control over their own budgets, even when those budgets depend entirely on transfers of cash (however laundered) from Germany.

    The Germans, naturally, say no, if they are going to have to pay the piper, they get to call the tune. The mendicant governments, however, are saying that sovereignty demands that they call the tune regardless of who pays the piper.

  • Brutus||

    Pipers are a right!! H8r!!

  • Paul.||

    Recent polling indicates that the pro-bailout Greek party, New Democracy, and the hard-left anti-austerity party, Syriza, are neck-a-neck at the polls.

    I see this as the ultimate Euro-dream team. An anti-austirity party coupled with a pro-bailout party in a power-sharing agreement?

    That's win-win. Keep on spending...other people's money. That truly is a formula that can go on almost forever.

  • johnl||

    That's the range of the debate? From making minor concessions to DE in exchange for continued handouts, to insisting on larger handouts with no strings attached?

  • DJF||

    So he is saying that the people who set up and run the EU were incompetent and the only way to save things it to give those same people more power.

  • Scruffy Nerfherder||

    He's ready for US politics

  • rts||

    I have observed that for statists of all stripes the cure is always to prescribe more disease.

  • Old Mexican||

    As hard as it might be to believe, many in Europe still think that the best way to avoid these sorts of crises is an increase in government, regulation, and a unified banking sector.

    Then I saw they're insane!
    I'm a believer!

  • ||

    I completely understand why the Greeks would be kicked out of the EU. What I don't understand is why the Germans continue to shovel money into the EU furnace. The first country to back out of the EU ought to be Germany.

  • Brutus||

    Germany industry has made a lot of money from the supertankers of cash shoveled into backwaters like Greece.

  • || it's round-about subsidies for some, higher taxes for others. The system works!

  • R C Dean||

    Germany recently passed a set of laws that allow them to withdraw from the Euro in pretty short order. Their contingency planning is done.

    I think when push comes to shove, the leftward lurch of other EU countries will kill austerity, and that in turn will kill Germany's willingness to fund another round of bailouts. The Euro, as we now know it, is done.

    The funny thing is, a Euro without the mendicant countries would probably be significantly stronger (say $1.50/Euro) than what we have now.

  • johnl||

    This is what should happen. The German speaking countries should leave the Euro, and the Romans and Greeks should stay. Then they can print their obligations away, while the German banks take currency losses. No actual defaults are needed.

  • cthorm||

    You're wrong, and so is Draghi. Other than Greece, all of the EMU countries could stay in the currency union if the ECB was willing to loosen monetary policy. The ECB is not willing to do that, and so monetary policy is far too tight for several member states. The Germans are right to push for fiscal tightening, but the ECB should offset that tightening with looser money. But they won't.

  • R C Dean||

    Hell, they could all stay in the union, even Greece, if the budget and austerity requirements were lifted and the ECB underwrote all the borrowing. But talking about the ECB loosening monetary policy/underwriting more borrowing is just code for "Germany writes a big check."

    The Germans are right to push for fiscal tightening, but the ECB should offset that tightening with looser money.

    IOW, if you, Greece/Spain/Italy, will give up control over your budget (fiscal sovereignity), the ECB (funded by the Germans) will emit more currency.

    Isn't that what I said?

    Of course, you could be arguing that the ECB should just print the damn money, rather than taking it from the Germans first. However, the Germans aren't going to sit still for that kind of inflationary policy, even though a weaker Euro is good for their exports.

  • R C Dean||

    One other thing: Greece's problems aren't the real threat to the Euro. Its Spain, and maybe Italy. If no other countries were overextended, Greece could probably be managed. However, Spain (and likely Italy) are overextended, and they are simply too big to bail out (short, of course, of just having the ECB print up a few trillion to pay off their debts).

  • wef||

    The Germans are right to push for fiscal tightening, but the ECB should offset that tightening with looser money

    The two policies are not time consistent.

    Empirically speaking, Germans and others have looked at the records of these politicians and find no history of credible commitments even without loose money. Looser money would undermine even their pusillanimous gestures at trying some prudence with other people's money. Tight money is an enforcement mechanism.

    But anyway, hasn't the ECB cut rates to about one percent, and didn't about a trillion euros in discount rate loans get pumped into the system?

    But, but, but..... we have to DO SOMETHING!

  • Pro Libertate||

    I have an idea. How about the EU drop its quaint attempt at unified sovereignty and join the United States? As territories, of course, not full states. Except maybe Germany and some of the eastern countries.

  • A Serious Man||

    So the US would save Europe from German hegemony? Has that, like, ever happened before?

  • Pro Libertate||

    But in a different way. Naturally, as a U.S. state, Germany will have to give up soccer and adopt American football. With some other minor changes, but that's the big one.

  • Spartacus||

    ... there is no reason to think that further integration would somehow help.

    Unless by "help" you mean "suck whatever remains of the goodwill and value attached to the Euro into bankrupt states so they can postpone the day of reckoning for a while." In that case it would be a big help.

  • John||

    The current jobs report that even class retard Matthew Yglesias can't spin it. Of course it has nothing to do with Obama being a moron. No. It is because the Fed hasn't created enough inflation. No kidding.

  • Pro Libertate||

    Politics is. . .never having to say you're sorry.

  • John||

    You got it. Here is Obama on the campaign trail today

    My expectation is that if we can break this fever, that we can invest in clean energy and energy efficiency because that's not a partisan issue."

    After Soylandra and a hundred billion pissed away on clean energy unicorn, the dumb motherfucker just can't give it up.

  • Pro Libertate||

    He had his chance. He and his party decided to double-down on socialism. It didn't work. Time to go.

  • Paul.||

    There's a time for thinking, and a time for action... this is no time for thinking!

  • R C Dean||

    we can invest in clean energy and energy efficiency

    Go right ahead. I assume by "we" you mean "Michelle and I". You're worth a few million, take a plunge with your own damn money.

  • Pro Libertate||

    Oh, is that what he meant? Is he resigning to go develop green energy alternatives? I have no problem with that.

  • Paul.||

    Anyone been watching Al Gore's portfolio?

    (Ok, I admit I'm obsessed with Al Gore the way Shrike (Palin's Buttplug) is obsessed with Palin)

  • A Serious Man||

    Evidently natural gas doesn't count as clean energy. This is one issue that Romney can legitmately roast about his bullshit.

  • Anonymous Coward||

    Taking advantage of the extraordinarily cheap rate at which the federal government can borrow money to cut checks to state governments might be best of all.

    Fiscal discipline? Budgeting? Cutting back? What's that? Put that shit on the plastic and worry about it later.

  • ||


    8.2% unemployment.

    So where is Tim to revise his projection that Obama will win in 2012?

  • Pro Libertate||

    I don't get Tim at all on that one. I think Obama is toast--the economy is stuck in neutral. Presidents always--always--get blamed for the economy. And, in this case, there's some truth to it, as the government has reached the terminal parasite stage.

  • R C Dean||

    Obama has never won a hard-fought election. In IL, he won with the kind of dirty tricks that just won't fly in a national election, and then McCain laid down for him.

    The blank slate thing (and even some of the media teflon) is gone. He's been dragged back down to earth, and he's stuck with an economy that even the corrupted media can't help him with.

    Now, nobody throws away elections like Republicans, but I would say the clock is running out on Obama.

  • Pro Libertate||

    I agree. I see little hope for Obama, barring some horrible scandal for Romney or Romney's unfortunate death by drone.

  • ||

    Some of the teflon may be gone, but he's certainly got one topnotch PR campaign willing to sweat blood going for him still.

  • Rasilio||

    I don't think it is anywhere near so clear cut as that. If the Republicans had nominated anyone who could offer a clear distinction in economic policy then I think you'd be right but Romney's vague statements of ideals and history of big government support for corporatist policies will make it very hard for the minority who are not hard core members of Team Red or Team Blue to see him as being really any different that Obama on economic issues.

    I don't think Obama has any real chance of winning the election but I do think it is possible for him to not lose it because Romney is Obama for minus the support for gay marriage for all intents and purposes.

  • Pro Libertate||

    Romney sucks for libertarians, especially. But he won't offend enough to get Obama re-elected.

    What's incredibly stupid of the Obama campaign is to keep calling Romney Captain Capitalist. It isn't really true, of course, but most of all, it strengthens Romney on economics--the main issue at stake here and Obama's flaming weakness.

  • Citizen Nothing||

    Romney sucks for libertarians, especially

    Yeah, but when President Romney fucks things up even worse, you know who and what's gonna get the blame.

  • Pro Libertate||


  • Paul.||

    If... IF Romney does win, I agree with this. We'll get Romney-nomics, and libertarians will get blamed. I can already see the setup from here.

  • ||

    Obama has never won a hard-fought election.

    He beat Hilary.

  • Paul.||

    This was going to be my rebuttal to that. Hillary was a hard-fought primary. It was touch-and-go for a while there.

    Hillary was solid prose, Obama was a poem (Thanks Tim!). Liberals chose a poem and never looked back.

    What would have been interesting is if Hillary had bucked her party machinery and ran against Obama for 2012. That would have been interesting.

  • PapayaSF||

    Also, Obama benefitted from lots of moderates and others eager to prove how non-racist they were by voting for him. That's not going to happen a second time.

  • Paul.||

    I dunno. He'll have 99.998% of the black vote. White liberals keep exclaiming how "there's too much at stake to give up on Obama now/we need to see him fulfill his true legacy shit". The Navel gazing is going good and strong. All you have left is a few moderate whites whose #1 concern is the economy. Ie, unemployed people who are literally placing all their chips in the notion that this or that president well get them employed again will be the wild card.

  • Paul.||

    I don't get Tim at all on that one. I think Obama is toast--the economy is stuck in neutral.

    You know where I stand on Biden's victory in 2016...

    But still, Obama, like healthcare, isn't like a normal market.

    Liberals literally (and metaphorically) have invested too much hope in Obama. Obama represents sunk costs to the liberal establishment.

    He's going to win, and win good and hard in November. And I will demand payment when he does.

  • PapayaSF||

    Except the liberal establishment is a minority of voters, and many are disillusioned by him (e.g. Wall Streeters, Jews, Hispanics). I'll be very surprised if Obama wins.

  • Paul.||

    Hispanics have never been a reliable liberal constituency. There's lots of data they (they!-- sounds racist) skew conservative on many an issue.

    I have no knowledge of how Jews swing. I'm a bit confused by "Wall Streeters" though. Are they a "liberal establishment"?

  • Delroy||

    Is it just me, or does Mario Draghi sound like a movie villian name?

  • Pro Libertate||

    What was the name of the villain in Never Say Never Again?

  • juris imprudent||

    As hard as it might be to believe

    Are you kidding? That is SOP for progressives - we had the right idea, we just didn't do it hard enough.

  • VigDaRig||

    Those idiot politicians dont know if they are coming or going lol.


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