Mister Draghi, the politician

Who is the most powerful Italian in the world? According to Forbes, in 2014 it was Mario Draghi, whom the American magazine ranked the 8^th most powerful person in the world (see http://www.forbes.com/sites/carolinehoward/2014/11/05/putin-vs-obama-the-worlds-most-powerful-people-2014/). Draghi is the President of the European Central Bank (ECB), but, despite his ‘technical’ job, is playing a much more important and broader role and is arguably the top politician in the EU institutions. On 22 January, he unveiled a massive programme of Quantitative Easing (QE) for the Eurozone: a stimulus of up to 1.1 trillion € until September 2016 to fight deflation and revive the moribund EU economy. It is a bold, if late, political move. What will Germany think?

Hopefully, austerity will end. It has failed. Southern Europe has been brought to its knees, and Northern Europe does not fare that better. The Netherlands and Finland, for example, have been in recession throughout two entire years, 2012 and 2013. In the period 1991-2014, Germany’s average per quarter growth has been 0.25%; for the Netherlands, 0.1%. This data is truly depressing, and demonstrates austerity has backfired on its proponents. Think about Finland, which few years ago was a strong advocate of fiscal tightening; its politicians, who will soon face polls, are now talking about ‘missed goals’ and ‘ten years’ to get the country back in shape (see http://www.bloomberg.com/news/articles/2015-02-04/finns-get-no-greek-choice-as-austerity-is-only-election-promise). In contrast, in the USA and the UK, where central banks have adopted expansive monetary policies, some recovery has been achieved. In the years 2008-14, the Federal Reserve spent almost 4 trillion $ in QE; the Bank of England, 375 billion £; the Bank of Japan eventually joined the ‘QE club’ with a program worth 1.4 trillion $ (April 2013). Now it is the Eurozone’s time.

Germany has been defeated. After three years of opposition to the QE, its hawks have apparently given up. Criticism has not been missing, but for now the Bundesbank’s establishment and its leader, President Jens Weidmann, are silent. His predecessor, Axel Weber, has again criticised the QE (see http://www.thelocal.ch/20150121/europe-missed-chance-to-fix-economy-ex-ecb-chief), and said national governments should do more. While the latter point contains a grain of truth, the necessity and value of the QE have been positively appreciated by bankers and economists well outside the Eurozone; among them, China’s central banker, Zhou Xiaochuan, has briefly remarked, ‘I agree with Mario Draghi’, and the Bank of England’s Governor, the Canadian, Mark Carney, has openly praised it. In Carney’s view, the QE is now necessary for both Germany and the other states, and over time should be supported by a true fiscal union. Germany’s neoliberal policy is in fact transforming the Eurozone into an economic wasteland, and risks eventually backfiring on Germany itself. The point here is political, rather than economic. The Bundesbank’s hawks are correct in pointing to the limits of the QE and the importance of national reforms. In addition, the EU treaties leave little to no room to an ECB policy of financing national governments. However, the issue at stake is the Eurozone’s survival, and this is a political point. The Bundesbank’s short-term and mainly economistic/legalistic view might bring down the whole European project, which has already become less popular in many countries. Angela Merkel, for her part, has again expressed scepticism, but in fact in a more discreet and diplomatic way.

The QE can bring significant benefits, but it might be ‘too little, too late’, we are afraid. Throughout these years, the EU (and the Eurozone in particular) has lost industrial potential and competitiveness vis-à-vis the USA and East Asia. Germany is still strong in the automotive industry, but France, Italy, and Spain (these four countries together have a population of approx. 255 million) have been long lagging behind. Financial integration has been modest and the Eurozone cannot boast a macro regional stock exchange, unlike East Asia or the Middle East, where capital markets’ integration is an ongoing process. Unemployment rates remain tremendously high (over 10% in France; about 13% in Italy; almost 24% in Spain, etc.), and social unrest, ripe, also because of the rise in the number of temporary and poorly paid jobs. All of this has a strong impact on politics.

Look at Syriza’s win. Its success is a clear defeat for the EU. The majority of Greek citizens have said ‘No’ to this European Union, which is aligned to Anglo-American neoliberism and has no autonomous political will. The QE can limit damages, even if we cannot guess for how long nor what would happen in case of ‘Grexit’ or any other external or internal shock. What would then happen if other (and more aggressive) anti-EU parties won elections in bigger countries? What would happen if France’s Front National obtained the Elysee, or the UKIP gained a decisive share in the forthcoming UK polls? Even worse: what would happen if anti-EU or anti-immigration parties gained ground in Germany?

Paradoxically, the EU’s top politician is a central banker. Mario Draghi is attempting to keep the European house united and together. Where is Brussels’ Commission? Will it eventually wake up? Without political union, the future of the Eurozone looks grimmer than ever. Once an integration model, which inspired other regional unions (the Mercosur, the African Union, the ASEAN, etc.), the EU risks now being thrown into history’s dustbin. Only Mr Draghi seems to be aware and alert.