Ben Chu: Only the ECB can calm crisis, but it is still dragging its feet

Share
Related Topics

Super Mario to the rescue? Not on the basis of yesterday's performance. Many investors had assumed there was an unspoken deal between the key decision-makers in Frankfurt, Brussels, Berlin and Paris. National governments would embrace the strict new balanced budget rules demanded by Germany this week and, in return, the European Central Bank's new president, Mario Draghi, would commit to buying up as many eurozone sovereign bonds as necessary to stabilise the single currency.

The fiscal discipline part of the deal was always a nonsense. This crisis is not a consequence of overspending by governments. Every distressed European nation, with the exception of Greece, had fiscally conservative governments in the years prior to the 2008 bust. Several ran budget surpluses. What has destroyed the public finances of nations such as Spain and Ireland is the bursting of huge property bubbles that were inflated by profligate domestic banks (which were funded, in turn, by banks across Europe).

It was the private sectors, not the public sectors, of these nations that ran amok. Angela Merkel's new restrictions on state borrowing would not have prevented the present conflagration. Nor will they prevent a similar disaster happening in future.

The markets know this. Yet they have been happy to indulge the German pantomime so long as it meant the ECB could start doing its proper job. The problem, though, is that Mr Draghi yesterday sounded like he had never heard of the secret rescue deal. Not only did the ECB president rule out any large-scale purchases of eurozone sovereign bonds, he also scotched hopes that the ECB was preparing to lend to the International Monetary Fund so the Washington institution could do the stabilisation job instead.

He said not only must the letter of the EU treaty clause that prevents the financing of eurozone government debt by the central bank be honoured but "the spirit" too. In other words: no back-door ECB-funded bailouts. Mr Draghi sounded like a man who would rather allow the eurozone to break up than contemplate a breach of the ECB's deficit-financing rule.

Is there any hope? Mr Draghi left the door open, ever so slightly, to national central banks, rather than the ECB, priming the IMF to rescue tottering European states. But, even if such a cumbersome scheme materialised, there has to be doubt over whether it would succeed in calming rattled investors.

The ECB is the only credible stabilising institution around. European politicians and policymakers, primarily German ones, have wasted 18 months trying to find alternatives to deploying the firepower of eurozone's central bank to rescue the single currency. It now looks as if they have resolved to waste even more time.

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Junior Web Designer - Client Liaison

£6 per hour: Recruitment Genius: This is an exciting opportunity to join a gro...

Recruitment Genius: Service Delivery Manager

Negotiable: Recruitment Genius: A Service Delivery Manager is required to join...

Recruitment Genius: Massage Therapist / Sports Therapist

£12000 - £24000 per annum: Recruitment Genius: A opportunity has arisen for a ...

Ashdown Group: Practice Accountant - Bournemouth - £38,000

£32000 - £38000 per annum: Ashdown Group: A successful accountancy practice in...

Day In a Page

Read Next
 

Errors & Omissions: A widow’s tale with an unexpected twist

John Rentoul
 

For all his faults, Russell Brand is utterly sincere, something politicians should emulate

Janet Street-Porter
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

How to make your own Easter egg

Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

Bill Granger's twist on Easter Sunday lunch

Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
Joe Marler: 'It's the way I think the game should be played'

Joe Marler: 'It's the way I think the game should be played'

The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

Cricket World Cup 2015

Has the success of the tournament spelt the end for Test matches?
The Last Word: Justin Gatlin knows the price of everything, the value of nothing

Michael Calvin's Last Word

Justin Gatlin knows the price of everything, the value of nothing