Draghi: Do Exactly As We Say, And We'll Hand Over The Money
Originally published on Thu September 6, 2012 3:15 pm
Are you a eurozone country? Are you having a hard time borrowing money at a reasonable rate? Mario Draghi has a deal for you.
First, you have to admit you have a problem. You have to ask for help from the European Union and the International Monetary Fund. Then you have to do whatever they say.
Not appealing, I know.
But here's the good part: If you do those things, the European Central Bank will make sure you can keep borrowing money at low, low interest rates.
That was the promise Draghi, the head of the ECB, made at his big press conference today. It's a big deal. It effectively means that Europe now has a bailout fund of unlimited size.
Under the program, known as Outright Market Transactions (OMT!), the ECB will buy a country's short-term bonds on the open market, if the country agrees to abide by rules imposed by the EU and the IMF. This continues the trend we've been seeing in Europe of linking assistance with some renunciation of sovereignty. More broadly, this is another step toward something like a United States of Europe — which is what Europe will have to become if the euro is to survive.
The new program doesn't solve Europe's problems. What Europe really needs is more economic growth, and lower borrowing costs won't deliver that. But they will buy Europe time to get its act together. Which is basically all the ECB can do.
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