Thursday, December 8, 2011

Merkozy a Bust

I expected this: Mario Draghi made his move today, even before the Eurosummit in Brussels announced its results, or lack thereof. He lowered the ECB's main interest rate and somewhat relaxed collateral requirements to allow distressed banks to borrow more easily, but he most emphatically did not do what Sarkozy undoubtedly hoped he would, namely, announce massive purchases of Italian government debt. In effect, he reiterated his stance that "solving the crisis is up to the politicians," who should not expect the central bank to bail them out. So the Sarkozy-Merkel plan is dead in the water even before it has hoisted its sails: there will be no strong wind from Frankfurt:

At a news conference, Mr. Draghi said he was “surprised” that comments he made last week were interpreted as a signal that the E.C.B. would buy more bonds if political leaders, who are meeting Thursday and Friday in Brussels, delivered tougher rules on budgetary discipline.

Klar, ja? What lies ahead? Most likely, slow or no growth, possibly bank failures, rising unemployment, and heightened political tensions everywhere. Plus growing nationalist animosities and rising power of extreme right-wing parties in several European countries.

1 comment:

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