an article by Valentina Pop at EUObserver.com Economic Affairs,
Pop reports on a press conference held by European Central Bank (ECB) Chief Mario Draghi after the ECB left its key interest rate unchanged, in spite of voices elsewhere to change it.
On the interest rate inertia Jack Ewing writes at the New York Times:
"By keeping its firepower in reserve for now, the central bank put pressure on political leaders to weave the euro zone more closely together, for example by sharing the cost of bank bailouts and giving up more control over government spending. "ECB Chief Draghi lashed out at prophecies of doom by commentators such as George Soros and Paul Krugman. As Pop writes:
"[Draghi] said it is not "correct" to talk about a three-month deadline to save the euro, as US financier George Soros and top economist Paul Krugman projected in recent weeks.Draghi also had stern words for the criticism coming from the USA in general, as Pop writes:
"This is not the right way to cope with these issues," he said."
""To my knowledge, the US is not a small-scale economy. Countries around the world should first focus on their own reforms before worrying about spillover effects," he said, hinting at increased criticism from Washington that eurozone leaders are dragging their feet and letting the euro-crisis bring the entire world economy down."We might add that the Eurozone is also not a small-scale economy and should be able to handle itself financially, in spite of current problems.
Certainly Draghi is correct in saying that prophecies of doom are out of place and one must await the measures that will be taken down the road.
As Reuters reports in Spain needs results of bank audits first - De Guindos:
"Spanish Economy Minister Luis de Guindos said on Wednesday there were no immediate plans to request a bailout of Spain's banks, with the results of an audit of the banking sector needed before any further steps are taken."Obviously, as Ian Wishart reports at the European Voice in Wanted: a plan to save the eurozone, the upcoming European summit at the the end of June will be an important step toward arriving at a solution, but as he writes:
Accordingly, the wheels of European finance here are going to be moving much more slowly and carefully than the somewhat hysterical voices in mainstream media might be wishing, but they will be moving."Herman Van Rompuy, the president of the European Council, who is overseeing the ‘roadmap' for fiscal integration, appeared to play down suggestions that a comprehensive plan would be ready in time for the summit.“It is only the beginning of the work,” he said on Monday (4 June). “Hopefully we can present results of that work by the end of this year.”"
The idea that the Eurozone or the European Union could implode within a short period of time is just nonsense, although there is no denying some serious problems -- all foreseeable of course. Nevertheless, erroneous prophecies of doom are merely unnecessarily causing bank depositors to make unnecessary runs on their banks in places like Spain and Greece, and it achieves nothing sensible.
Massive numbers of Germans vacation in Spain and Greece each year: indeed, Germans spend more international tourist dollars per year than any other nation in the world, dollars that make up an observable share of the GDP of such countries. See e.g. the Spiegel article Greece and Egypt Try to Woo Back German Tourists and Das sind die beliebtesten Reiseziele der Deutschen. In any case, the powers that be in Germany most certainly are not going to let a country like Spain to go into default. Half of those German powers that be probably own homes on Mallorca and thus have strong interests in Spain generally. In a way, a part of Spain is almost like a part of Germany.
The key thus is to concentrate on financial and banking SOLUTIONS under the motto that one should spend 80% of one's time on solutions and only 20% of one's time on the problems to be solved.
The financial PROBLEMS are known to everyone, and they are solvable.
Structural economic changes, on the other hand, also necessary within the EU, are much more difficult and will require much more time, and, at the bottom line, must be a primary goal included in the financial solutions.
We might add with a little bit of humor that Krugman may be right on "the economics" and Soros may be right on "the money" but they are both wrong on "the politics" of solutions, which are always politically more complex than things look on paper. Many big players out there are protecting their own vested interests and the ultimate solution will then as always be a kaleidoscope of inputs, not perfect, but keeping the motors of finance and banking running.
Krugman is surely right, for example, that austerity is as at best a short-term non-sustainable solution and that growth can be the only long-term solution to the Eurozone's financial and structural problems. Successful nations such as France and Germany are going to have to pay more attention to helping Europe's periphery to become more modern in economic structure and attitudes. If not, the EU can not survive long-term with a few rich nations and the rest in financial distress.
Soros is surely right that monetary policy has to be fine-tuned to the wealth imbalance among the nations of Europe and of course the resulting debtor-creditor problems among those various European nations. In the end, inflation and expansion of the money supply are surely inevitable, but it has to be done indirectly because devaluation is not directly possible in the Eurozone or in the EU. Without indirect inflation, the Eurozone can not survive long-term.
But again, there is no need to panic and there are a multitude of opportunities for Europe to be become stronger and more stable.
