Mario Draghi, feather merchant to northern Europe, is once again plying his dubious trade, this time with a slick sales pitch designed to persuade Germany that he can “save” Europe with a financial scheme that makes alchemy look respectable. The challenge he faces is more ambitious than merely putting another dab of lipstick on the PIIGS. Rather, it is like asking the Germans to press their noses to a sardine’s armpit and have them come away reassured they’ve smelled fine perfume. In Berlin to deliver a tightly scripted speech that was intended to give Germany’s parliament political cover for doing the wrong thing, Draghi told members he was “here to listen to your views on the ECB, on the euro-area economy and on the longer vision for Europe.” Translation: “This is a stickup. Give me the money now and don’t try anything foolish, because I am desperate.” True enough. But will German bankers simply roll over? In all probability yes, given Merkel’s damn-the-torpedoes determination to do what every politician must these days in order to survive – i.e., kick the can down the road for as long as possible.
If and when they run up the white flag, the bankers will be surrendering more than just German treasure. For in the by-now terminally ethereal world of global finance, they are the last honest men, steeped in the agonizing lessons of the Weimar hyperinflation of 1921-23. Now they are being asked to sanction a deal that would give Draghi the ability to create unlimited sums of digital money so that the central bank can buy the bonds of countries no longer able to pay even the interest on those bonds. Such measures will of course have no impact on the EU’s moribund economy, especially with Germany’s unexpectedly steep slowdown threatening to push all of Europe into a death spiral. This new crisis, manifestly unthinkable to economists just six months ago, will make it even harder for the German people to allow Merkel to issue Draghi a blank check. But it must and will be done, since there are no economic solutions at this point, only politically expedient ones.
‘Bernankean’ Aspirations
Merkel’s most reliable ally in bringing Germany’s recalcitrant, quaintly old-school bankers to heel is a news media that has sunk to the level of shameless complicity in propagating a quack Theory of Quantitative Easing that is absurd on its face and easily falsified. Here’s how the Wall Street Journal attempted to tiptoe past the implication that Draghi is seeking nothing less than Bernankean powers to gin up unlimited sums of debt-based money: “Unlike a previous limited plan that failed to stem the crisis, the ECB can now undertake open-ended purchases.” How very nice for the ECB. But we won’t hold our breath waiting for the Journal’s op-ed page to explain what the euphemism “open-ended” actually means. Nor do we expect any journalist to challenge Draghi’s meaningless promise to “remain permanently alert to risks to price stability.” If enabling the printing of a trillion more euros is compatible with price stability, then issuing wampum as legal tender is the path back to global prosperity.
Most challenging of all for Draghi will be surmounting the legal hurdle of an EU constitution that clearly and explicitly forbids the purchase of sovereign debt by the ECB. Although Draghi insists that his bond program won’t violate ECB rules against financing governments, there is no legally getting around the fact that it will. Assuming Europe follows America’s promiscuous example when it comes time to expediently misinterpret the ECB’s charter, what hope is there that mere laws will ultimately stand in the way of economically suicidal folly?