10 September 2012

Roger Cohen: Super Mario to the rescue

Little by little, Mario Draghi has taken an institution whose overriding mission was to keep inflation in check and turned it into a lender of last resort prepared to throw everything into preserving the euro, comments Cohen in the NYT.

Many Germans are not happy, convinced an inflationary southern rot is setting in, but Draghi is right. Europe is irreversible; for that, at this point, the euro must be, too. The preamble to the US Constitution speaks of “a more perfect union”. The founding European treaties speak of “ever closer union”. For neither has the road to union been devoid of battles between north and south. But the cause has been worth the fight on both sides of the Atlantic: There simply is no greater one. For Europe the approaching centennial of the outbreak of World War I should be sufficient reminder of that.

But people have short memories. They think the euro is a dispensable experiment, a technical construct or a hedgie’s plaything, when it is the solemn gage of German commitment to a united Europe — a project that, like most great undertakings, comes at a price.

Now a united Germany views Europe more as actuary than supplicant. In Italy, by contrast, a certain European idealism endures. One way to view Draghi’s battle with Jens Weidmann and the Bundesbank is this: A big idea (Europe) versus a smaller one (price stability).

But what good is a Europe where the treaty-stipulated role of the central bank is being finessed by Super Mario, where Germany becomes the permanent subsidiser of debtor nations like Spain and Italy, and where depression and unemployment become the enduring lot of poorer countries unable to regain competitiveness through devaluation?

The answer is that this is not a good Europe. The immediate future will be very tough, but it is a lot better than the tumultuous alternative of Europe’s unravelling; and in this crisis the seeds of ever greater European integration are being sown. (If the ECB. is now the Fed, what must the European Union become?) The euro was a hasty marriage precipitated by the end of the Cold War, the quid pro quo of Germany’s anxious neighbors for its unification. This crisis is a belated post-bubble reckoning with the implications of that act.

And so the push is now on toward necessary conditions of a shared currency like fiscal union — Draghi’s unlimited purchase of bonds is conditioned on tough fiscal adjustment programmes — and a banking union built around a new eurozone supervisor. The path to both will be rough. Politicians’ interests are at stake. Economies are shrinking. But whatever the howls it is clear enough this far into the euro crisis that “ever closer union” is an obstinate idea that has entered the European consciousness, even if it goes unmentioned.

Full article

© New York Times