This article Bloomberg.com, published Friday, gets a bit ahead of itself in praising Draghi for stellar performance as Europe’s central banker, ushering in an era of recovery, albeit very fragile. The article titled Draghi Melt-Up Makes Europe Emerge From Germany to Greece has this to say about Draghi:
European Central Bank President Mario Draghi is underpinning markets with a pledge to protect the euro [!!] even as a recovery takes hold in everything from manufacturing to Spanish gross domestic product.
“By Draghi standing up and saying what he said out loud, it was the first time that a politician of relevance in Europe was prepared to react and be ahead of events,” said David Moss, a portfolio manager at F&C Asset Management in London, which oversees $149 billion. “The economy has stopped being a headwind. The underlying prospects are not great by any stretch of the imagination, but are much better.”
Since taking over at the ECB in November 2011, Draghi has reduced interest rates to a record low, vowed in July 2012 “to do whatever it takes to preserve the euro,” and said this year that borrowing costs would remain low for an extended period.
And here are the indicators of recovery:
A manufacturing index for the 17-nation currency bloc rose to 50.3 in July, according to a survey of purchasing managers by London-based Markit Economics, the first time since July 2011 the gauge topped the 50 level that indicates growth. Spain emerged from a two-year recession in the third quarter, with GDP expanding 0.1 percent, the Bank of Spain estimated this week.
The euro-region economy will grow 1 percent in 2014, following two years of contraction, according to forecasts from 54 economists compiled by Bloomberg.
There’s a fly in the ointment, though:
The ECB’s balance sheet shrank to 2.33 trillion euros ($3.2 trillion) in the week ended Oct. 18, from 3.1 trillion euros in June 2012 as banks repaid funds they had borrowed to ease liquidity at the height of the debt crisis.
It saves the skeptic for last:
“I would not give so much credit to Mario Draghi,” Lewis said in a phone interview in London on Oct. 22. “The markets are busy listening to Draghi but, behind the scenes, the ECB has done what it has always done. Our fund managers are not overwhelmed by the strength of the European story. I don’t think we are quite finished with the European crisis.”
I agree. I don’t think we are quite finished with the European crisis. The growth forecasts for 2014 are very tepid, Ireland and Spain having 0.1 percent each – if it even comes to pass. The change is probably more to do with American and Japanese monetary policy than anything the ECB has done. Money matters and over the last year EZ monetary policy has been tightened to the tune of nearly a trillion euros. What sort of insane policy is that?
With that said, this article is a pretty sad one. It starts off by painting a picture of Draghi slaying wild beasts with the jawbone of an ass, then presents data showing that the ECB under his leadership hasn’t been particularly helpful. It might be true that he has done more than Trichet, and Europe is likely better off than if Trichet had remained. But the 50 shades of tight money still equal perma-recession, and an epidemic of financial heartache and long lasting ruin. I really don’t understand how anyone at the ECB can sleep at night. I’m aware that Jens Weidman doesn’t have a conscience. But what about the rest of them??