Without the aid of the European Central Bank, the eurozone would have broken apart long ago. Under the management of its president, Mario Draghi, the ECB stabilized European financial markets in 2012 with the courageous step of announcing unlimited purchases of government securities if necessary to save Europe’s single currency.
The measure, which was taken against the vigorous opposition of Germans on the central bank’s board and their subsequent resignations, has led to a distinct reduction of risk premiums for bonds issued by European crisis countries. Some of the countries have been able to step out of the protective umbrella and borrow money on the capital markets on their own.
Even if this success is now largely indisputable, the eurozone is basically making no headway toward real recovery, unlike the United States. Six years after the financial crisis’ start and four years since the beginning of the euro zone’s crisis, growth remains anemic despite Germany’s upsurge, and the unemployment rate remains at an unacceptably high level.
This stubborn weakness is having an undesired consequence: the inflation rate is moving toward deflation. In periods of stagnating prospects for sales, companies can’t raise prices. The ECB is alarmed, and rightly so. Danger exist of a Japanese scenario: declining prices and years of stagnation.