The European Central Bank’s clay feet
The president of the ECB should not believe his own hype: Europe’s economic crisis is far from over.

Article Highlights

  • The president of the ECB should not believe his own hype: Europe’s economic crisis is far from over.

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  • The Book of Proverbs teaches that pride goes before the fall. Mario Draghi should take heed of that lesson.

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  • It is all too probable that Mr. Draghi’s declaration of victory in the Euro crisis will prove premature.

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The Book of Proverbs teaches that pride goes before the fall. Mario Draghi, the president of the European Central Bank (ECB), should take heed of that lesson. For at the very same time that he is trumpeting the great success of his "whatever it takes to preserve the Euro" statement made last year, the European economic periphery is again showing the clearest signs of economic and political distress.

Sadly, aside from declaring that the European crisis is over, Mr. Draghi is doing little to respond to these distress signals. This makes it likely that Europe will again experience a full blown economic crisis before the year is out. It also makes it all too probable that Mr. Draghi's declaration of victory in the Euro crisis will prove premature and that his credibility will end up greatly diminished.

Mr. Draghi does have some justification for feeling satisfied with the ECB's performance over the past year. In July 2012, Europe was quite literally peering over the abyss and the very survival of the Euro was in serious question. Underlining the gravity of the crisis was the fact that Italian and Spanish government borrowing rates had soared to over 7 percent, levels that were clearly not sustainable over the long run. Just one year later, in response to the ECB's bold policy initiatives, those borrowing costs have been reduced to affordable levels and the tail risk of a Euro break-up appears to have passed.

The full text of this article is available on The American's website.

 

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About the Author

 

Desmond
Lachman
  • Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.
  • Phone: 202-862-5844
    Email: dlachman@aei.org
  • Assistant Info

    Name: Emma Bennett
    Phone: 202.862.5862
    Email: emma.bennett@aei.org

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