We might have hoped that Mario Draghi, President of the European Central Bank, would at least be a bit better at Central Banking than he is at news management. But we would be disappointed.
He has laboured mightily and brought forth a mouse. He has marched his men to the top of the hill, and then marched them down again.
Last week, clearly worried by the markets’ loss of confidence in the €uro and the disturbing interest rates on Spanish and Italian debt, he announced that the ECB would do “everything necessary” to save the €uro, adding “Believe me, it will be enough”. I wrote about it a few days ago.
There was a huge relief rally in the markets. Traders are obviously unfamiliar with the fable of the shepherd boy who cried wolf. I was surprised that they seemed so pleased, given the history of initiatives that have run into the sand over the last couple of years.
But markets and commentators were agog with excitement ahead of Draghi’s news conference yesterday. After all, it was not just the President of the ECB. Chancellor Merkel and French President François Hollande had echoed Draghi’s words. They too would do everything necessary. Then US Treasury Secretary Tim Geithner flew in for consultations with the German Finance Minister, and reportedly President Obama himself had a conference call with (unelected) Italian PM Mario Monti, urging decisive action. Obama is naturally desperate for positive economic news, and a solution to the €uro crisis, ahead of his re-election bid in November.
Yet come the press conference, Draghi had no more than the tired phrases that we have heard so often before. The €uro is irreversible (would you buy a car that was irreversible?). No one should doubt the commitment, the political will behind the single currency. It was futile to bet against it. And action to solve the problem and save the currency? Nothing at all. In coming weeks the ECB would think about the modalities of policies to reduce interest rates on government bonds in peripheral markets. Well thanks a bunch, Mario. And what has the ECB been doing for a couple of years?
To be honest, I was fairly astonished. I expected that Draghi, having deliberately built expectation to fever pitch, would at least do something. I was prepared to write a piece about kicking the can down the road — again. This was a disastrous piece of news management even by EU standards. Interest rates on ten-year Spanish debt shot up, and were back in crisis zone even before the ECB President had finished speaking.
But of course the ECB is (or should be) constrained by the Treaties, and by its charter. It cannot set out to rescue eurozone member-states. It cannot buy sovereign bonds directly in the markets. And Draghi has Angela Merkel looking over his shoulder, and the Bundesbank riding shotgun.
The bizarre thing about this débâcle is that they’ve had years to think about it. Twenty emergency summits. A series of ever-more-desperate initiatives, each buying less time than the last. And now they’re running on empty. They’re scraping the barrel, and coming up with nothing. Sooner or later they’ll have to face reality: the only solution for the €uro is euthanasia.