Issue of the week: The latest fix for the euro crisis

last updated 8 January 2015

We may have just witnessed “the beginning of the end” of the euro crisis, said Zachary Karabell in TheDailyBeast.com. Mario Draghi, the head of the European Central Bank, last week announced an unlimited bond-buying plan for troubled euro zone countries. The bank will essentially replace private credit markets as a cash source for Spain and Italy, lowering their borrowing costs and relieving them of the threat of insolvency. Global markets leapt at the news, with the S&P 500 hitting its highest level since January 2008. Spain and Italy will now have critical time to repair their “recession-racked economies,” said The New York Times in an editorial. Though they’ll have to agree to strict ECB conditions, “there is reason to hope that such reforms will not be as backbreaking” as those imposed on Greece, since Draghi was able to overrule the objections of Germany’s austerity-pushing Bundesbank. It’s now up to Europe’s leaders to use the breathing room Draghi has given them to push for a stronger fiscal and political union and end this crisis once and for all.

It’s “far-fetched” to think that they will make that push, said Francesco Guerrera in The Wall Street Journal. Real progress in the Continent’s “sluggish march toward unification” would require politicians “to give up powers many of them—and many of their voters—regard as sacrosanct.” The rich countries would have to stomach more bailouts, and the poor ones more austerity—all in the name of closer ties with neighbors they don’t particularly like. Nor is the ECB’s move an “antidote to Continental stagnation,” said Derek Thompson in TheAtlantic.com. By accepting more aid, Spain, Italy, and others are simply agreeing to put on another straitjacket. If the bank demands they slash spending even during a recession, then this so-called rescue deal “will only amount to cheaper borrowing in exchange for slower growth.”

The biggest loser in all of this? Democracy, said Gideon Rachman in the Financial Times. “Voters from Germany to Spain will increasingly find that crucial decisions about national economic policy can no longer be changed at the ballot box.” German taxpayers are rightfully worried that they could be stuck with the ECB’s bill, while Spaniards and Italians are grumbling over tighter foreign supervision of their national budgets. Mix such “humiliating and overt loss of national sovereignty” with deepening economic woes, and you have “the perfect formula to drive voters to the political extremes.”