varoufakis58_ERIC BARADATAFPGetty Images_lagarde Eric Baradat/AFP/Getty Images

New Weapons for the ECB

Continued reliance on European Central Bank President Mario Draghi’s weapons will probably succeed in keeping quasi-insolvent states and banks afloat. But it will do so only at the expense of deeper stagnation and uglier political tensions.

ATHENS – During his tenure as President of the European Central Bank, Mario Draghi forged a variety of weapons that he deployed to shield the eurozone from menacing deflationary forces. Without them, the euro would have been history. However, the deflationary specter haunting Europe was never truly defeated and is now back with considerable vengeance.

In the dying days of his presidency, Draghi is throwing everything he has at the problem, in the hope of buying time for Europe’s governments and for his successor, Christine Lagarde. But, like antibiotics to which bacteria have fully adapted, his weapons no longer work. On the contrary, they inflict considerable damage on savers in Europe’s heartland, who blame the ECB for the resulting negative interest rates that eat into their savings, and encourage no appreciable productive investment in the green technologies and infrastructure that Europe so desperately needs.

In his penultimate press conference as ECB president, Draghi warned that very little is left in the ECB’s arsenal that could do the job. For that reason, he urged politicians to boost aggregate demand via higher public spending and a substantial relaxation of the EU’s absurd commitment to procyclical fiscal policies, which he rightly fears will magnify the coming recession.

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