Mario Draghi, the Exterminator

Mario Draghi with Angela Merkel

Allow me to brief you about the monthly appearance of the president of the European Central Bank, Mario Draghi:

1) Eurozone’s growth will be negative by -0.6pc this year and positive by 1.1pc in 2014, that is, six quarters of non-stop falls. What will cause this reversal? Two “forces”, namely the increase of exports and the increase of domestic demand propped up by the ECB’s generous monetary policy.

2) We really are all in this, everyone is in recession together with the euro peripheral economies.

3) Inflation, now at 1.4pc is under controlled and expectations point out this will not change any time soon.

4) There are some risks to these forecasts, but they are low key–meaning? Watch out, it will get worse.

5) Not a single word about unemployment–yes, 19 million in the Eurozone.

6) Credit to companies fell by -1.9pc in April. The details in this are particularly nasty: “The growth of loans to the private sector continued to be weak. The annual growth rates of loans to households (adjusted for loan sales and securitisation) remained at 0.3% in April, broadly unchanged since the turn of the year. The annual negative growth of loans to non-financial corporations (adjusted for loan sales and securitisation) increased from -1.3% in March to -1.9% in April.

“This development stemmed, in particular, from net redemptions in short-term loans, which could reflect reduced demand for working capital against the background of weak order books in early spring. More generally, weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non-financial sector balance sheets.”

So why is Mario Draghi not announcing further interventions, helping investor confidence to recover, offering strangled banks liquidity until they start providing credit again? After all, inflation is at historic lows and growth is negative–and will be absurdly minimal next year.

Instead, we are left alone with an ECB that behaves like a frigid central bank that is unable to fight the cycle–which seems to have become a biblical plague, consequence of an incontestable fate–, that looks motionless while companies close and feels nothing while people have a hard time even to survive. Mario Draghi never read Friedman about the role of central banks in a depression: Friedman blamed the Federal Reserve for the 1929 crisis, for its bellicose attitude against the markets when they began to fell and dragged the banks down with them as they couldn’t resist the deposit run.

My take? Draghi’s speech was an insult to the victims of the crisis, but worse of all is the silence with which he will be met in the following days. The governments of the Eurozone that should complain will remain quiet, obeying policies coming from Frankfurt and Berlin. And Spain’s among them acts ever more erratically, frightened by Brussels and by the internal regional problems it faces.

Mario Draghi even dared to say that the Eurozone must press austerity plans on. Submission to the German Chancellor Angela Merkel so far is absolute.

About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://

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