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Don’t Pin Much Faith to the Draghi Plan

The technocrat has spoken. Now it’s up to the politicians to act. The latter doesn’t necessarily follow the former.

by Damian Reece

Mario Draghi’s bond-buying scheme is an interesting piece of monetary kit designed to solve the technical issue of countries, such as Spain, failing to fund themselves through capital markets unwilling to extend short term IOUs.

It may improve market confidence and allow governments access to cash but that’s a necessary, not sufficient, condition to end recession and reduce deficits. So what Draghi announced today is not a solution to the eurozone crisis. It might help but only if Spain’s Mariano Rajoy, for instance, decides that politically he can accept the conditions attaching to the Draghi plan, which amount to austerity rules imposed on Spain set by the euro’s bail-out machinery, notably the European Stability Mechanism. The International Monetary Fund is also likely to be involved.

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