Super Mario, as European Central Bank
president Mario Draghi has become known, cheered the world's financial
markets last week with his bold plan to buy unlimited quantities of
crisis-hit governments' bonds to shore up the euro.
But as the action passes to Germany this week, investors will be given a sharp reminder that this is not just a crisis of high finance, but one of messy international politics. Set against the hidebound, ultra-cautious ECB of the single currency's early years, Draghi has been extraordinarily bold, winning approval for "outright monetary transactions" in the teeth of vocal opposition from the Bundesbank.
The plan should bring down borrowing costs for Spain and Italy and break the vicious circle in which investors demand higher interest rates because they fear a country could be forced out of the euro – and the resulting pain would make a euro exit all the more likely. In the longer term, if we ever get there, it should also help Portugal, Greece and Ireland to go back to borrowing in international markets.
But central banks can only do so much: Draghi has no lever to pull which would fix the deep divisions between the "core" economies of Germany and its northern neighbours and the uncompetitive, recession-hit south.
But as the action passes to Germany this week, investors will be given a sharp reminder that this is not just a crisis of high finance, but one of messy international politics. Set against the hidebound, ultra-cautious ECB of the single currency's early years, Draghi has been extraordinarily bold, winning approval for "outright monetary transactions" in the teeth of vocal opposition from the Bundesbank.
The plan should bring down borrowing costs for Spain and Italy and break the vicious circle in which investors demand higher interest rates because they fear a country could be forced out of the euro – and the resulting pain would make a euro exit all the more likely. In the longer term, if we ever get there, it should also help Portugal, Greece and Ireland to go back to borrowing in international markets.
But central banks can only do so much: Draghi has no lever to pull which would fix the deep divisions between the "core" economies of Germany and its northern neighbours and the uncompetitive, recession-hit south.
No comments:
Post a Comment