From Jawboning To Fingerboning - Mario Draghi Releases Op-Ed On The Future Of Europe

Tyler Durden's picture

When jawboning is stuck on max, and mere talking and exortations to just "believe" lead to no incremental benefit for PIIGS bonds and the leve of the Dax, what is a central planner to do? Why start, er, fingerboning, and write extended missive on the future of one doomed utopian vision or another. Sure enough, the former Goldmanite has just released the following Op-ed in German Zeit, titled, "The future of the euro: stability through change", which contains this piece of sheer brilliance: "The ECB is not a political institution. But it is committed to its responsibilities as an institution of the European Union." The European Union which is first and foremost a... political institution.

Full Op-Ed below:

The future of the euro: stability through change

Contribution from Mario Draghi, President of the ECB, Published in "Die Zeit", 29 August 2012

Across Europe, a fundamental debate is taking place about the future of the euro. Many citizens are concerned about where Europe is heading. Yet the solutions presented appear to them unsatisfactory. This is because these solutions offer binary choices: either we must go back to the past, or we must move to a United States of Europe. My answer to the question is: to have a stable euro we do not need to choose between extremes.

The reason this debate is taking place is not the euro as a currency. The objectives of the single currency remain as relevant today as they were when the single currency was agreed. To spread price stability and sustainable growth to all European citizens. To reap the gains of the world’s largest single market and make the historic process of European unification irreversible. To raise Europe’s standing – not only economically but also politically – in a globalised world.

The debate is taking place because the euro area has not yet fully succeeded as a polity. Currencies ultimately depend on the institutions that stand behind them. When the euro was first proposed, there were those who said it would have to be preceded by a long process of political integration. This was because sharing a currency would imply a high degree of joint decision-making. Member countries would be a “Schicksalsgemeinschaft” and would need strong common democratic underpinnings.

But a deliberate choice was made in the 1990s not to give the euro such features. The euro was launched as a “currency without a state” to preserve the sovereignty and diversity of member countries. This informed the so-called “Maastricht setup”, which laid the euro’s institutional foundations. But as recent events have shown, this institutional framework left the euro area insufficiently equipped to ensure sound economic policies and effectively manage crises.

For this reason, the way ahead cannot be a return to the status quo ante. The challenges of having a single monetary policy but loosely coordinated fiscal, economic and financial policies have been clearly revealed by the crisis. As Jean Monnet said, coordination “ is a method which promotes discussion, but it does not lead to a decision.” And strong decisions have to be made to manage the world’s second most important currency.

A new architecture for the euro area is desirable to create sustained prosperity for all euro area countries, and especially for Germany. The root of Germany’s success is its deep integration into the European and world economies. To continue to prosper, Germany needs to remain an anchor of a strong currency, at the centre of a zone of monetary stability and in a dynamic and competitive euro area economy. Only a stronger economic and monetary union can provide this.

Yet this new architecture does not require a political union first. It is clear that monetary union does entail a higher degree of joint decision-making. But economic integration and political integration can develop in parallel. Where necessary, sovereignty in selected economic policy fields can and should be pooled and democratic legitimation deepened.

How far should this go? We do not need a centralisation of all economic policies. Instead, we can answer this question pragmatically: by calmly asking ourselves which are the minimum requirements to complete economic and monetary union. And in doing so, we will find that all the necessary measures are firmly within our reach.

For fiscal policies, we need true oversight over national budgets. The consequences of misguided fiscal policies in a monetary union are too severe to remain self-policed. For broader economic policies, we need to guarantee competitiveness. Countries must be able to generate sustainable growth and high employment without excessive imbalances. The euro area is not a nation-state where persistent cross-regional subsidies have sufficient popular support. Therefore, we cannot afford a situation where some regions run permanently large deficits vis-à-vis others.

For financial policies, there need to be powers at the centre to limit excessive risk-taking by banks and regulatory capture by supervisors. This is the best way to protect euro area taxpayers. There also needs to be a framework for bank resolution that safeguards public finances, as we see in other federations. In the U.S., for example, on average about 90, mostly smaller, banks per year have been resolved since 2008 and this had no impact on the solvency of the sovereign.

Political union can, and shall, develop hand-in-hand with fiscal, economic and financial union. The sharing of powers and of accountability can move in parallel. We should not forget that 60 years of European integration have already created a significant degree of political union. Decisions are made by an EU Council filled by national ministers and by a directly elected European Parliament. The challenge is to further increase the legitimacy of these bodies commensurate with increasing their responsibilities and to seek ways to better anchor European processes at the national level.

A more solid political foundation should allow for agreement on a basic principle: that it is neither sustainable nor legitimate for countries to pursue national policies that can cause economic harm for others. This constraint has to be built into how countries design their economic and social models. The only sustainable model is one that is consistent with the terms of a common currency. Countries have to live within their means. Competition and labour markets have to be reinvigorated. Banks have to conform to the highest regulatory standards and focus on serving the real economy. This is not the end, but the renewal of the European social model.

From the ECB’s perspective, a strong economic union is an essential complement to the single monetary policy. Building this will require a structured process with correct sequencing. Yet citizens can be certain that three elements will remain constant. The ECB will do what is necessary to ensure price stability. It will remain independent. And it will always act within the limits of its mandate.

Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools. When markets are fragmented or influenced by irrational fears, our monetary policy signals do not reach citizens evenly across the euro area. We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens. This may at times require exceptional measures. But this is our responsibility as the central bank of the euro area as a whole.

The ECB is not a political institution. But it is committed to its responsibilities as an institution of the European Union. As such, we never lose sight of our mission to guarantee a strong and stable currency. The banknotes that we issue bear the European flag and are a powerful symbol of European identity.

Those who want to go back to the past misunderstand the significance of the euro. Those who claim only a full federation can be sustainable set the bar too high. What we need is a gradual and structured effort to complete EMU. This would finally give the euro the stable foundations it deserves. It would fully achieve the ultimate goals for which the Union and the euro were founded: stability, prosperity and peace. We know this is what the people in Europe, and in Germany, aspire to.

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Comay Mierda's picture

Hitler is laughing in hell right now.  Germany will do what he couldn't 70 years ago.  It will conquer all of Europe - without firing a single shot!  

Comay Mierda's picture

credit-based currency not bullets

there are never enough euros in existence to pay off interest on all debts.  defaults become more frequent and banks get all the real property and wealth pledged as collateral to the worthless fiat, while Germany convinces all the countries that it needs to take fiscal control of them.  Then it will be easy to expand its control to all affairs of European countries

and the "wise" economists of the day promote this system


old naughty's picture

Jaw-to-finger...Jack of a thousand trades (literally).

Un-natural promotion for goldmanites these days.

Dr Benway's picture

Jaw-to-finger? Is that like A2M?

OttoMBMP's picture

Comay, what a stupid comment!

Germany is not conquering anything. It is bankrupting itself and at the same time ceding sovereignty to Brussels which is not run by German civil servants and not organized according to German standards either.

What is right is that Hitler (and Stalin, Churchill and Roosevelt for that matter) destroyed Europe (including Germany)and their successors will do it again.

Comay Mierda's picture

and who is the power behind the Brussels "throne"?

OttoMBMP's picture

Those interested in a New World Order.

You may find Germans among them. But it is not justified to blame Germany as such and more then any other country, particularly as Germany is PAYING by far the biggest share.

Just ask yourself: Who is benefiting? Germany (the German people) or the international elite?

Ghordius's picture

come on, we already have a NWO. and this since WWII. It's called Pax Americana. It's an empire, and the sheep (it's a sign of my exasperation that I use this term) just don't want to "see" it.

The empire has a disease: "runaway banksterism". It's a symptom of globalization and financialization paired with a widespread feeling of personal, private and individualistic entitlement typical of the decay phase of every empire. Now it will be of course interesting to see in the near future if the empire succumbs to this disease or not.

saturn's picture

Draghi is a mentally ill person. He must be detained at once. There will be no other Hitler in Europe tolerated.

lookma's picture

 I'll take NWO conspiritard fail for $100.

Fiat's not the enemy.  Fiat affords no power if people don't save in it.  

Its right in front of you.  It real simple.  But you can't see. Others can - I wonder why?

Shackled to the prison of your "education," hubris is the tragic flaw.

Stock Tips Investment's picture

Europe faces significant challenges. For one, his "welfare economics" seems unsustainable over time. It is possible that people retire younger every day while the population lives more and more years. The role of governments in Europe is too big. Governments spend, invest in infrastructure, maintain social security, to retirees, to health care plans, etc, etc. This has led to Europe a less competitive region. U.S. firms, China, rest of Asia and Latin America recently, are displacing European companies. The world's wealth is not being generated in Europe today. Europeans face a dilemma: either recognize this situation and change drastically (assuming perdidads in the short term) to regain competitiveness or enter into a vicious circle which may leave dificilemente.

Overflow-admin's picture

*Overflow_admin delivers a Godwin point to Comay Mierda*

NoClueSneaker's picture

Me thinks Feds & american fascists & Hempstead & Versailles  fascists laughing right now . AFAIK was Hitler an sock puppet who accomplished bunch of the tasks orderd by TPTB .  Nothing new in the west . Genocide yields .

Draghi Queen couldn't have sold such utter bullshit  25 Years ago . Europe is intelectually and ethically down the crapper, every fuckin' country ruled by GS & Co. The sheeple blows hard . No hope. I'll have a german beer b4 Monsanto buys in ....

slaughterer's picture

Rumor is that this is the piece Draghi was going to deliver at J-Hole.  Rather than throwing it out, he chose to publish it in Die Zeit.  What is alarming are the numerous unresolved contradictions underlying his understanding of the ECB and his role there. The big question: Since when do central bankers have to come up with a world-historic "Weltanschauung" to do their job?  I know we had Greenspan and his Ayn Rand, but Draghi's game of self-legitimation reads like ... 

Ghordius's picture

there are over one hundred central banks, and central banking has now a history of several hundred years. just a simple question: how much do you know of the others? Without wanting to defend the institution of fiat money (something I'd like to see go into the dustbin of history), do you realize that as such they are not what busts economies, but the way you drive them? To the point that recklessly is set vs careful? Greenspan was at the helm of the leading CB issuing the reserve currency and set rates down for the globe, yes. So? I have more trouble understanding Greenspan's "Weltanschauung" than Draghi's. In fact, if you read the whole op-ed, you'll find that his view on european integration is the quite common moderate one.

Popo's picture

Central Banking would be a good thing if it didn't have as one of its key mandates "stability".  

"Stability" has long been an excuse for repressive rule.  

When you have runaway concentrated power (like banking and the current corporatocracy) "stability" becomes an excuse to preserve the status quo however evil and dangerous it may be.

Bernanke believes he is preventing the "unthinkable" by preserving "stability" but ironically the unthinkable is what we already have:  Oppressive rule.  And a destabilizing collapse is the only thing that will end it.

All central banks eventually fall for the philosophical trap of believing that "stability" is their mandate.   

It isn't.   

The stability of the CURRENCY is their mandate.   NOT the banking system.   To believe that the two are inseparably related (or to allow a system to develop in which they are co-dependent) is to fail 100% in the core mission of central banking and to promote a form of rule that is anti-democratic and evil.





BoNeSxxx's picture

+1 for creativity.

After you show me a central banker capable of divorcing his stability mandate from the banking system, will you take me Snipe hunting?

Ghordius's picture

Popo, while I do agree with you in principle, I do have to ask about which CBs you are talking about. You see, I firmly believe that when Trichet or Draghi or other continental central bankers talk about stability, they mean and understand something fundamentally different from Bernanke. Stability, here, is about trade flows.

The 17 central banks that make the eurosystem have a different tradition. For example they generally don't "help out" the stock markets. And the continental banking system here are mostly different, too, particularly in how much their own states are involved in them.

Bernanke/the FED have two mandates. And the dual traditions of helping the stock market and the presidential incumbent's reelection.

Draghi/the 17/the ECB have one. And the dual traditions of gold and hammering on (careful, continental word incoming) speculation.

Both groups have also the bad habit of monetizing, but this is another thing altogether.

I could make a weak point that TARP/TALP are a different pair of shoes than the LTRO, but this is too early to say anyway.

honestann's picture

Power [over others] corrupts.
Absolute power corrupts absolutely.

Until human beings realize that NOBODY has ANY LEGITIMATE RIGHT to control ANYONE ELSE, human beings will continue their spiral down the toilet of history.

WAKE UP.  THINK for a change.

Every human comes to exist in the same way --- they are born.  The mere symmetry of that fact is sufficient for any honest being to understand that no human can possibly have any legitimate right to steal from others, to prohibit others, or to force others how to live.  PERIOD.

Yet you, and virtually everyone else is utterly incapable of thinking past what you hear every day.  You accept a whole swath of premises that are utterly and completely false, and massively destructive.  And you carry on from there stating endless ways your favorite "powers" should shove it down the throats of others.  That makes you complicit in their evil.  You are responsible for sanctioning and supporting predators, as safe as you may seem hidden in your home and "on the side of powerful predators", you are responsible for your actions.  And make no mistake, overtly sanctioning and supporting predators and the enslavement of mankind by your favored predators is an action.

Freegolder's picture

And if one researches the constuct of the currencies run by the central banks, one can see that the Euro is leading the way (historically) in seperating the link between the currency and the nation state, and also between the currency and gold.

You'll enjoy reading this, others will just ignore it. Draghi is preparing for the day when the Euro assumes its role as the new reserve currency (minus Triffin's dilema, because of the freely valued gold reserves):

Interesting times ahead, not many live to see the collapse of an empire and a new global monetary system. But we will.

L927's picture

"Interesting times ahead"

that's it! And i giggle!

AynRandFan's picture

Draghi's game of self-legitimation reads like . . . "we can have our cake and eat it too."

orangedrinkandchips's picture

You get negative votes if you mention his name, like voldermort or whoever his name is in larry potter

THE PEN IS ALWAYS MIGHTIER THAN THE SWORD, or uzi, assult rifle, etc....

lookma's picture

This would finally give the euro the stable foundations it deserves. It would fully achieve the ultimate goals for which the Union and the euro were founded: stability, prosperity and peace. We know this is what the people in Europe, and in Germany, aspire to.


Agreed, the euro will free Europe from its harsh history of political domination, struggle and war.  

q0paz's picture

<< For fiscal policies, we need true oversight over national budgets. The consequences of misguided fiscal policies in a monetary union are too severe to remain self-policed. >>


But it is a fallacy to posit that correct fiscal policies can be applied within the straitjacket of the euro currency.


<< To continue to prosper, Germany needs to remain an anchor of a strong currency, at the centre of a zone of monetary stability and in a dynamic and competitive euro area economy. >>

False. "Germany anchoring a strong currency" and "dynamic and competitive euro area economy" are mutually incompatible.


<< Only a stronger economic and monetary union can provide this. >>

The medicine isn't working, More medicine.



timbo_em's picture

"The ECB will do what is necessary to ensure price stability. It will remain independent. And it will always act within the limits of its mandate." That reminds me of Judas. Three lies and it's not even lunch time.

Bottom line: The Draghi goes to a German left wing weekly to advertise that the ECB might or might not act outside its mandate (buy sovereigns) to stay within its mandate? 999

govttrader's picture

Even though I know that central bankers will let the countries go down with the ship with 25% unemployment, I still can't believe that the EUR exists.  Its like the food shortage scam in India...breaks my heart

dcb's picture

Ahh, he's got it wrong. those that want to go back to the past realize they havwe become slaves to the european banking elites and wnatt to in fact own some of their own lives and not be serfs. There are people in this world I do not want to here from, they include everyone from goldman sachs. It's all about one  thing for them. preserving their wealth and power. if you rise up at goldman, you are scum by definition in my view

Wakanda's picture

"The ECB is not a political institution." - Mario Draghi


Then what is it, a skittles shitting unicorn?

NoClueSneaker's picture

European Union is a theft of intellectual property . Terry Prachett should sue them  all ....

Mongo's picture

Fuck you Mario

Ghordius's picture

to whoever wrote the intro with "...which contains this piece of sheer brilliance: "The ECB is not a political institution. But it is committed to its responsibilities as an institution of the European Union." The European Union which is first and foremost a... political institution." And? I may miss something and this is perhaps the constant FED/US or BoE/UK "lens" with which the EUR is looked at.

the main message of Draghi's op-ed is this:

"...either we must go back to the past, or we must move to a United States of Europe. My answer to the question is: to have a stable euro we do not need to choose between extremes." And this is correct, IMHO.

To which every time people from the UK and US guffaw and presume that their way must be everybody's way, as if history would be a kind of railroad to which there are no other outcomes as the one pioneered by them.

Hello? It was the banking centers screaming for EuroBonds/EuroTaxes "or death". All with a sidedish of "you have to make your setup understandable for simple bankers who don't care about politics at all, only bonuses".

AynRandFan's picture


Spain needs German money because Spain spends too much and not just because Spanish banks made poor investments.  Spain spends beyond its means, so does Italy and so does Greece, Portugal, and Ireland.  This spending is a political problem, not just a banking problem.  If the EU clamps down on Spanish government spending without providing cross-border funding, the Spanish people will feel impoverished because they have adopted a socialistic culture that drives out economic growth.  So, for Draghi to deny the political underpinnings of a common currency is false and disingenuous.

Rip van Wrinkle's picture

Let's say your right. Then put it to a vote in the Eurozone. Let the people decide.


Thought not.

Ghordius's picture

wrong address. I'm constantly harping that europe needs more referenda. Nevertheless I defend the constitutional setups we do have - I profoundly believe in them, and so you can read me constantly harping on the centrality of the national parliaments.

btw, do you know about this referendum that was made in Ireland for this little thing?

Thought not? See you at the Dutch Parliamentary Elections.

i-dog's picture

LOL ... the things that captured political parties will do to get a referendum passed (on a 50% turnout):

"Fianna Fáil party whip Seán Ó Fearghaíl then sent Ó Cuív a letter which put a gag on him during the referendum campaign for speaking out of turn and expressing his own opinion against the party's wishes."

Democracy, Euro-style!

Ghordius's picture

I'm not laughing at all. There is a word for this: Quorum.

The Swiss had hundreds of referenda where only 30% voters went to the urns, they find it ok, and they are the world's experts in referenda. Several other european countries don't allow a referendum to be valid if it does not meet the quorum of 50%.

The quorum system is often misused by parties of the "no" side who then propagandize the "don't bother to vote on it". And this, is for me the perfect example on how political systems can be smart or stupid: a system where parties profit from telling people not to bother can't be smart.

On principle, I agree with the Swiss. Quorums are not democratic. And prone to misuse.

And your second comment is just a shot at typical "party discipline", which in a multi-party environment is a different kind of beast than in the first-around-the-post systems where the two major parties are not really in any danger to lose too much.

Yes, democracy, euro-style. Care to compare to... to...?

deez nutz's picture

why cant this clown take a cue from Captain Edward Smith and just go back to the wheelhouse and wait patiently? Come on Mario see it for what it is that you and your bankers created. I don't think the Germans are like the American asshats and going to go "all in".

Frastric's picture

If only Draghi could fingerbone his way to activating the printing presses...

edmondantes's picture

what sort of moronic sheep would believe this rubbish?

eddiebe's picture

It would be quite simple to fix it: Link to gold and silver.

AynRandFan's picture

If Spaniards have a nanny state culture and a low standard of living, Draghi thinks they will not mind that Germans have a capitalist culture and a high standard of living.  No matter that Germans have plenty of tax money to spend and Spaniards don't.  No need for political or cultural integration.  No need for cross-border public money.


Ungaro's picture

Draghi queen is deranged if he thinks that 17 nations will abandon their constitutions along with their sovereignty and cede power to a bunch of unelected technocrats in Brussels and Strasbourg. Economic union? It'll never happen.

honestann's picture

You misunderstand the dynamic.  Yes, they'd never convince the individuals in 17 nations to purposely enslave and destroy themselves.  However, the predators-that-be have already managed to make sure only fellow predator gain the reigns of power in those 17 nations (and all 200-odd other nations), and those predators will simply decree whatever benefits the predators-that-be.

Thus the only solution is an all-out shooting war between the predators-that-be and the people, which obviously the people would win easily.  The problem with that is, roughly 99.999999999% of the entire human race have been utterly brainwashed and braindamaged by years of brain-destroying training by the predators (in control of so-called "education" and mainstream media).  Thus the vast, vast, vast majority of individuals in this world sanction and support the predators!  This leaves the tiny minority who see what's going on virtually helpless.

And so ends the human race.

razsil's picture

That's very interesting analysis. All you needed to know about the core issue with the Euro. The Euro has some positive effect. However, it seems like it should have been the last step in a long process of creating the united states of Europe.  
The article All About Alignment - really nicely points out that this system can work well when things go well. But the political misalignment among the 17 Euro members does not allow for one leadership that is required to get out of a crisis like they have now. I would not be optimistic about the future of the Euro.

SmoothCoolSmoke's picture

Seems to me, if the individual Euro countries need a model, they need only look to the northwest, to the Icelanders.