It kind of got lost in the shuffle, but Mario Draghi, the head of the ECB — and the only guy who anyone thinks can really solve this crisis — gave a horrible, heartbreaking speech this week in Frankfurt.Paul Krugman flagged the key bit from the text:
Credibility implies that our monetary policy is successful in anchoring inflation expectations over the medium and longer term. This is the major contribution we can make in support of sustainable growth, employment creation and financial stability. And we are making this contribution in full independence.
This is obviously nonsense. It’s the ECB’s obsessive fight against inflation that has hampered growth, employment creation, and financial stability. Draghi is getting things 100% backwards.
While everyone seems to agree that ECB debt monetization is required to put out this fire, there’s really no sign that the institution or anyone who matters is evolving towards this position, though we suppose that if it’s going to happen (and by it we mean the ECB suddenly coming in and depressing peripheral yields in a huge way via practically unlimited bond buying) it will be done in total surprise, with no warning.