The European Central Bank, the Frankfurt-based equivalent of the Federal Reserve in the United States, has the authority to print euros, can make cash available to banks and is led by a small board of highly trained financial experts who can make decisions on a moment’s notice.
In other words, the ECB has the tools and ability to take the kind of dramatic actions that could address the crisis. But doing so could undermine its position as an independent central bank, risk inflation in the future, work against democratic principles and remove pressures on national governments to make needed economic changes.
On the other side are the governments of Europe — 17 of them that use the euro currency alone, each with its own unique political structure, national interests and idiosyncratic government officials.
Even the vehicles through which these nations are supposed to jointly shape policy — the European Commission and European Union — can each seem like a confusing morass of interrelated bureaucratic entities.
Although everyone acknowledges it would be preferable for democratically elected leaders to make the moves toward economic unity that are the most promising solution for the crisis, it would be much more politically convenient for politicians if the unelected technocrats at the ECB would take those steps and become the channel through which Europe’s losses are realized.
Somebody is going to have to blink.
The ECB’s efforts to hold the line were evident Thursday as it declined to cut interest rates to try to address a weakening European economy. By contrast, the Bank of England expanded a program of buying bonds to try to push money into the British economy, a move known as quantitative easing. The bank on Thursday announced 75 billion pounds in new purchases. (Two weeks ago the Federal Reserve also eased monetary policy in the United States, further illustrating the deep concern within the U.S. and European central banks about the economy.)
“The economic outlook remains subject to particularly high uncertainty and intensified downside risks,” ECB President Jean-Claude Trichet said Thursday, raising the possibility that the ECB will ease monetary policy sometime in the near future.
“A very thorough analysis of all incoming data and developments over the period ahead is warranted,” said Trichet, who completes his eight-year term as bank chairman Oct. 31 and will be replaced by Mario Draghi, governor of the Bank of Italy for the past five years.
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