Mr Draghi must use the bully pulpit to urge governments to exercise their fiscal powers to fend off a recession
had been hoping for a quiet few months before he retires from the European Central Bank
at the end of October, he has been disappointed. He has been in charge for eight high-wire years. In 2012 he quelled panic about the break-up of the euro zone by pledging to do “whatever it takes” to save the single currency. In 2015 he introduced quantitative easing in the face of fierce opposition from northern member states. Now the euro zone is flirting with recession and governments are not helping by being slow to loosen fiscal policy.
Investors’ jitters about a recession and the impact of the trade war have sent bond yields tumbling. Thes hawks—such as Jens Weidmann, the head of the Bundesbank, and Klaas Knot, of the Dutch central bank—caution against overreacting with a large stimulus. But the economic data are dreadful. Output in Germany shrank in the second quarter, and some economists are pencilling in another contraction in the third. Italy is stagnating.
Some economists, among them Larry Summers of Harvard University, argue that, with little ammunition left, central banks should refrain from action so as to force governments to step into the breach with fiscal policy. They are right that the root cause of the economic woe is a shortfall of demand. Sovereign borrowing costs in much of the euro area are near zero or below it. In an ideal world governments would leap at the chance to borrow so cheaply in order to invest.
Last, . You might think that he should avoid taking action at the end of his tenure, so as not to bind the hands of his successor, Christine Lagarde. Not so. A determined response now will save her much work later. Mr Draghi is in a unique position. His stature with investors and governments gives him real clout.
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