euro's woes

Delays and Half Measures

epa05021455 Italian, Mario Draghi, President of the European Central Bank (ECB) during a hearing by the European Parliament committee on Monetary affairs in Brussels, Belgium, 12 November 2015. EPA/OLIVIER HOSLET +++(c) dpa - Bildfunk+++
The ECB didn't take action soon enough.
  • Why it matters

    Why it matters

    Tougher action by the ECB and the euro zone’s leaders are necessary if the euro zone wants to emerge healthy from its ongoing crisis, the author says.

  • Facts


    • Europe’s economies are struggling and in December, the euro zone’s rate of inflation remained unchanged at 0.2 percent year on year.
    • The president of the European Central Bank, Mario Draghi, is pursuing a bond-buying program to stimulate growth, but some critics of the policy say it is too little, too late.
    • Opinions differ as to why growth is so low in the euro zone and how to address it – and whether individual countries should be able to take more unilateral action to stimulate their economies.
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Are the euro zone’s continuing woes the result of its incomplete construction? Or because of policy errors in responding to the crisis?

The euro area member states gave up monetary policies for countering economic adversities, but the founding fathers lacked political will to compensate with pooled resources for helping each other. This incompleteness is surely made worse by wrong-headed policies, delays, and half measures. That said, the distinction is overstated: the incomplete monetary union and repeated policy errors likely come from the same source.

Recent research shows the ECB fell behind the curve at critical junctures of the crisis.

As the U.S. Federal Reserve slashed interest rates to fight the Great Recession, the ECB at first raised the policy interest rate in July 2008. That hike came just as euro area industrial production began a prolonged economic contraction.

In April and July 2011, the ECB raised interest rates when the American rate was near zero and the Fed was adding stimulus through quantitative easing. 

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