Mr Draghi's medicine may deliver short-term relief but no long-term cure, writes Die Zeit editor Joffe in the FT.
The president of the Bundesbank was once the mightiest central banker in Europe. No more. In the council of the European Central Bank, Jens Weidmann is just one of 23. He has only one vote – the same as Greece. It gets worse. One of Europe’s last monetary hawks, Mr Weidmann is isolated, gnashing his teeth as the ECB gears up to go full throttle into a business that, according to its statutes, is verboten: buying the debt of Member States. Wave goodbye to the old ECB; say hello to the Fed-in-Frankfurt.
Mr Weidmann is being squeezed by the two Marios – Mario Monti, Italy’s prime minister, who wants the ECB to intervene, and Mario Draghi, the bank’s president, who has gone from tightfist to spendthrift. Now a third M has joined them: Angela Merkel. Traditionally a strict opponent of bailouts and bond purchases by the ECB, the German chancellor is now tilting against her own man – a former aide – in Frankfurt. To halt the crisis this trio wants the ECB to open its money tap – as wide, and for as long, as necessary.
Why has Ms Merkel shifted? More than half of German voters oppose further rescue measures. But that risk is manageable. The opposition parties, the Social Democrats and Greens, actually support spreading the debt of Club Med across Europe – with Germany as “Europayer”. Nor does Ms Merkel need to fear Germany’s constitutional court, which next week will rule on the eurozone bailout fund. If past experience holds, the judges will rap the government’s knuckles but deliver a permissive verdict.
One explanation for Ms Merkel’s switch is good old politics. The word in Berlin is that Ms Merkel wants to buy 12 months of quiet ahead of federal elections in 2013 when she hopes to secure a third term. Good politics, bad economics – and a very poor outcome for Europe.
Mr Weidmann is right to fear the moral hazard contemplated by the ECB and its lackadaisical allies from Madrid to Berlin. Mr Draghi’s dangerous medicine may deliver a short-term relief but no long-term cure. The European patient has been ailing for decades, a victim of overspending and under-reforming. It is time to get off the couch and restore competitive vigour. For that the Bundesbankers should stick to their guns.
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