Posted by: Dirk | May 31, 2012

Mario Draghi shows some leadership

“The configuration we had for 10 years, which was considered sustainable, has been shown now to be unsustainable unless further steps are undertaken,” Mr. Draghi told a committee of the European Parliament in Brussels.

In what may have been his bluntest criticism of political leaders since taking office in November, Mr. Draghi said that half-measures and delays by political leaders have made the euro zone crisis worse. He said they need to decide what kind of euro zone they want.

So says Mario Draghi in today’s NYT. The emperor’s new clothes are exposed as a fraud – the construction of the euro was surely well-meant, but incomplete. To stay in the metaphor, parts were showing: current account imbalances were left to be figured out by markets. The markets misjudged, which guaranteed cheap credit for the periphery for much longer than should have been justified. The markets were supposed to watch competitiveness and act as a bond vigilante, but it didn’t until it was too late and partial default now seems to be the only way back to a sustainable economy.

Mr Draghi is right in blaming European politicians for buying time, while doing nothing to resolve the crisis. Germany could have inflated much sooner, Spain could have handled its banking mess much sooner, the exact Greek sovereign debt numbers could have been published much sooner, and so on. If there is something to criticize in the ECB president’s words it is that they come very late. But that is not Mr Draghi’s fault, who started his position only in November 2011.

Mr Draghi’s call for action was not the only one today. Deputy Managing Director Nemat Shafik delivered a speech in brussels today titled “Reviving Growth in Europe”. Her ending is quite symptomatic:

Let me end here with a quote from another of Europe’s great statesmen, Jean Monnet. “People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them,” he said. It is time to accept necessity, and to step boldly forward to complete the reform agenda that will restore Europe’s growth and enable its future.

Germany, and that is the problem, is not in a crisis (yet). It appears that we need to wait until finally Germany’s economy runs out of steam until political change can be brought about. The European crisis is a political problem, not an economic one, if I may use that incorrect dichotomy. It is the European people who should discuss how they think Europe can be returned to the condition of a fantastic object, a goal worth sacrificing something for and accepting change.

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