Financial Times
September 16, 2012
When I heard the news of another round of quantitative easing in the US last week, my first thought was that Mario Draghi should have done the same. Instead, the president of the European Central Bank opted for a conditional bond purchasing programme with an uncertain start date. In the meantime, the eurozone’s faltering economy needs a much more determined monetary stimulus, and it needs it right now.
For the moment, the eurozone crisis resolution process feels good because none of this month’s potential accidents happened. The German constitutional court has taken itself out of the equation. Good riddance. Dutch voters re-elected their government and rejected the lure of populist propaganda. Mr Draghi did what was expected. While the economic situation in the member states gets worse, policy makers seem punch-drunkenly optimistic. They have not had so much luck in some time. The ECB’s Outright Monetary Transaction programme gave them a break.
But trouble is already building that may soon destroy the OMT’s credibility. Mariano Rajoy is still sending confusing and conflicting messages about whether Madrid will apply for the programme. The ECB made it easy for the Spanish prime minister. To qualify for the OMT, all the Spanish government needs to do is to apply for the so-called Enhanced Conditions Credit Line – a minimalist programme with limited conditionality. Mario Monti, Italy’s prime minister, has said Rome will not apply for the programme before its election. I have heard the first EU official admitting openly that maybe nobody will apply and the ECB may never have to buy a single bond. If market sentiment is sufficiently positive, that argument goes, things might resolve themselves.
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