The financial crisis has been over for a long time now, but, in a lot of ways, it hasn't been for central banks that have kept using their crisis-fighting tools to support what's still been a fragile recovery — at least they have until now.
Indeed, the Federal Reserve wrapped up its quantitative easing program, which basically amounts to buying bonds with newly printed money, back in 2014; the Bank of England did so in 2016 after briefly restarting it to try to cushion the blow from Brexit; and, more to the point, the European Central Bank just announced that, after 3½ years, it plans to bring its own to a close by the end of 2018. At this point, the Bank of Japan is the only one of the world's major central banks that looks as if it's still going to be printing money next year, although even it has been doing a little less of that as it's tried to transition to capping the country's borrowing costs instead.
The financial world, in other words, has almost returned to normal. The question, though, is whether it's ready to.
It certainly is in the United States and Britain, where unemployment is a mere 3.8 percent and 4.1 percent, respectively. But there are a lot of reasons to doubt whether that's true in the euro zone.
For starters, the problems with the euro made their economy fall further than anyone else's during the crisis. And secondly, the mistakes the inflation-phobic ECB has made since the crisis have meant they haven't made up as much of that ground. Specifically, it was quick to raise rates in 2011, responding to what even then was pretty clearly just a blip in oil prices with two economy-killing rate hikes, and then slow to print money afterward. Consider this: The ECB didn't even begin its QE program until after the Fed had ended its own. It's no wonder, then, that euro-zone unemployment is still 8.5 percent today.
That's the bad news. The worse news is that there's actually a good chance the ECB is just making a less catastrophic version of the same mistake it did before: letting higher oil prices convince it that there's neither the need nor the scope for further stimulus. This time around, it's letting the fact that the recent run-up in oil prices has sent inflation back up to 1.9 percent — right in line with their "close to, but under 2 percent" target — persuade them to take their foot off the gas. The problem, though, is that there's every reason to believe this won't last. "Core inflation," which tends to be a better predictor of future inflation by stripping out volatile food and energy prices, is still a relatively anemic 1.1 percent. Which is to say that with unemployment still being too high and inflation likely to still be too low, it's hard to see why the ECB thinks it should be doing less anytime soon.
Not to mention that winding down the ECB's bond-buying program will increase countries' borrowing costs at the exact moment that Italy's new populist government has been pushing it to lower them further. That could increase the chances of a full-on confrontation between the euro zone and its third-largest economy, with the very future of the common currency itself potentially at stake.
Other than that, it makes complete sense.
So while it's true that ECB chief Mario Draghi has certainly made good on his promise to do "whatever it takes" to save the euro so far, it's also true that that might be more than he thinks — or, more accurately, more than he can get the Germans to agree to.
Europe isn't the Unites States. Its economy isn't back to normal yet. So its monetary policy shouldn't be either.