Europe’s Ill-Fated Attempt to Halt the Economic Crisis


Last week the President of the European Central Bank (ECB), Mario Draghi, announced that the ECB would buy unlimited quantities of government bonds of member nations if necessary to halt the economic crisis which has plagued the continent since 2008. Unfortunately though, this idea isn’t panning out like they’d hope.

Almost immediately, Draghi’s plan saw opposition. Jens Weidmann, head of the German Bundesbank, voted against the plan and saw a statement put out by the Bundesbank warning that the move would be the equivalent of “financing governments by printing banknotes.”

These government bonds also came with conditions. To qualify for the ECB bond purchases, nations such as Italy and Spain would have to apply for aid to the European Stability Mechanism which would then trigger strict austerity requirements, an idea not being embraced since their effects on countries like Greece and Portugal was anything but beneficial. Taking this into account, both Italy and Spain were quick to reply that they wanted nothing to do with the deal.

Unfortunately for Draghi, this means that he is in the same spot as before and the financial crisis will rage on, but this may not be his fault.

According to Robert Kuttner, co-founder and co-editor of The American Prospect and a senior fellow at Demos, Draghi has given Spain and Italy conditions that they just cannot accept and not because he’s cold-hearted or wants to see their collapse, but rather because he has to abide by the European fiscal politics which in turn are led by the German government which demand austerity.

Kuttner predicts that the European economy will continue on a downward trend and the recession across the continent will simply carry on until a solution can be found which doesn’t come with the much-despised austerity conditions.

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