lost continent? The Year of Truth

There’s nobody in Europe who has as much power as Mario Draghi. The European Central Bank has managed to steer the euro through the markets – but the policy of cheap money is wearing thin. It's now up to governments to rescue the European ideal.
The currency's future is in the hands of many.

A fundamental contradiction lies at the heart of Europe.

On one hand, the future for the people of Europe lies in the unified continent. On the other hand, Europe’s elites shy away from talking openly about this.

Nationalist political parties have benefitted from this reticence: the Finns Party, the Front National, Britain’s Ukip, the Alternative for Germany – and now Syriza in Athens.

In this kind of constellation, people only talk about Europe when a problem arises.

Take the early elections in Greece, for example, and concerns about the country’s ability to pay its debts. All the discussions call into question five years of trying to rescue the euro, with billion-euro credits, writing off debts and lowering interest rates. It was all for one goal: to ensure the euro survived.

This adds up to the fact that rather than being embraced and pursued as a project, Europe is winding up a subject that people are forced to address.

The currency, now shared by 19 members including Lithuania, is the area’s biggest, last shared symbol. It is the symbol of the survival of an idea: that the euro would herald swift political union and speed up unification. The currency’s dramatic fight to survive is shaped by one man, whose signature appears on the bank notes of the region.

Mario Draghi, head of the European Central Bank, has a power that transcends all Europe’s actors and institutions, rules and contradictions. His bank is independent but Mr. Draghi plays his powers adroitly. Now, though, he may be approaching his limits.  

Mr. Draghi is the president Europe never had. He was not elected but selected. His word moves governments and markets; compared with this, the role of a country president is mere decoration – even in Italy.

His troops are money – he directs it with announcements, suggestions and by reducing the interest rate to a historic low of 0.05 percent. Another of his tools is the controversial program to buy asset-backed securities, covered bonds and possibly government bonds on a larger scale.

Unorthodox is the new normal; the emergency plan is on the wall.

Mr. Draghi deploys this army of money to counter the stockbrokers of Wall Street. His policies and manoeuvers have helped stabilize the euro, bringing its value down against the dollar and reducing the interest on bonds so indebted countries can borrow and cover what they owe.

Thanks to this strategy, the rich got richer because they could buy property, shares, company bonds and art with the extra liquidity while most people struggled on with their savings accounts and life insurance policies.

Mr. Draghi is the president Europe never had.

What Mario Draghi and his followers in the ECB’s Governing Council couldn’t achieve was creating more growth and jobs. The “Big Bertha” method of constant easing for banks didn’t lead to more lending as planned. Economically strong firms already have enough of their own money, they face a lack of demand on wholesale markets and therefore appropriate investment targets. Weaker firms, on the other hand, are often a credit risk for banks, which now face stricter regulation by the almighty ECB.

Europe’s business community is flagging. It’s not competitive enough against the resurgent United States and an ever-strengthening China. Yes, it’s an achievement that the euro zone still exists. But that’s not enough to secure the future.

That could still change. The lifeline that Mario Draghi bought European governments since taking office in 2011 is running out. It has hardly been used. Monetary policy cannot always do the job of governments. The moment of truth will come in 2015. Europe as a business location must finally become stronger, an era of reforms is necessary, better political union is required.

The vanguard of the politicized ECB has realized that their much-discussed monetary policy is worthless without a targeted investment policy and structural reforms. The central bank has bitten off too much (or rather politicians have force fed it) if its political parade of acronyms – from SMP to OMT – is meant to ensure growth all by itself.

Mr. Draghi almost desperately demands more public spending for infrastructure, education and Internet services (the “digital agenda”). Internally, he is engaged in a constant struggle against the group surrounding Bundesbank boss Jens Weidmann, which is worried about the question of how much the American concept of quantitative easing should be copied. But the majority within the ECB is such that the monetary hawks continuously lose out to the doves – something that won’t change even if the latest crisis in Athens causes a partial Greek default. According to the ECB’s statutes, Germany would be required to cover 27 percent of those losses, even though it only has five percent of the bank’s voting rights.

Mario Draghi has held two great speeches. In the first one, he announced to much fanfare in the summer of 2012 that he would do "whatever it takes" to save the euro – it was a warning to the financial markets. In the other speech in the fall of 2014 in the U.S. city of Jackson Hole he called for more investment – in a warning to politicians. It found little resonance in the euro zone’s political system, which is characterized by bureaucracy, lobbying and foreign policy intrigue. It’s a system that French politician Bruno Le Maire, a former minister under former President Nicolas Sarkozy, recently described in his book “Times of Power.” Getting things done in Europe comes down to making commissioners in Brussels pliable, and better yet, influencing enough civil servants below the commissioners: use threats and boycotts until you’ve achieved your compromise.

Spheres of power have been set up, so that Germany feels responsible for laws, France for politics and Britain for free markets. United States of Europe? That was once the nifty phrase trotted out by German Defense Minister Ursula von der Leyen. Chancellor Angela Merkel prefers to stay more vague.

Mr. Draghi’s attempt to keep Europe on life support lacks crucial elements. There is no vision of what this new creation should look like, whether a federation of states, a federal state, or a confederation. There is no concept of the political system to mediate the will of the people between the E.U. Commission, the European Parliament and the governments of individual member states. Nor is there a feeling of consciousness or pride about what this united Europe is and what makes it different from other global power centers – nor targeted industrial and economic policies to ensure innovation and the foundation for social welfare.

Politicians have presented wonderful papers over the years, meant to end Europe’s political impotence, but in the end they simply came up with names like “Sixpack,” “Twopack” and “Economic Government.” They conveyed that there would be stability rules for all, which would reveal and punish noncompliance. Few speak of such things today. Now they’re talking about the €315-billion investment program mooted by E.U. Commission President Jean-Claude Juncker. Touted to encourage the use of private capital, it’s actually pumped full of hot air. The president has, it seems, his own PR program.

Europe truly needs more than pretty words and cheap money. Anyone ignoring that wasn’t listening properly to Mario Draghi.


Hans-Jürgen Jakobs is Handelsblatt’s editor-in-chief. To contact him: [email protected]