Empowering the ECB is Europe’s Only Hope: Martin Wolf

Jeff Macke

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Martin Wolf, chief economic commentator for the Financial Times and long time critic of the Eurozone is optimistic that something tangible will emerge from the crucial, critical, and "endlessly hyped" two-day summit between EU officials commencing today. Alas, tangible and effective are wholly different concepts.

Wolf says the options are simple: the Eurozone can do the bare minimum to ward off economic chaos or come up with a maximal, comprehensive solution that is obviously never going to happen. The half-baked option, according to Wolf, is to "give enough cover, in terms of longer run discipline and longer run reform... to allow the ECB to start intervening in government bond markets in a much more aggressive way."

By way of translation, Wolf's idea is akin America's method for cutting our budget. First you posture, yell, argue and point fingers. Next you refuse any meaningful compromise in the now, leaving the hard decisions to your political successors. Finally you chuck money at the problem in a fiscally reckless manner designed to do nothing more than buy time.

Barring a wild modification of human and political nature this bare-boned solution is what's going to be detailed for us Friday afternoon. The problem with merely prolonging the crisis is that ultimate success is entirely reliant on an economic recovery in Europe to enable member nations to buy things from one another even as half of the Eurozone is facing mandatory austerity measures.

In short, the idea is to give countries less and hope they buy more while somehow not incurring more debt. It's an idea akin to he ECB becoming a Federal Reserve cover-band playing tired versions of America's failed policies. Regardless, Wolf says it's the Eurozone's only hope.

"The ECB alone has the capacity to make a difference," he notes. "I hope that whatever the governments agree to is enough to allow the ECB to be much more aggressive than it's been hitherto. But I'm not very optimistic. I think next year could be a terrible year for the Eurozone and it's possible that some of these governments will fail and the Euro as a project will itself fail."

Wolf's choices amount to a deep recession with exploding debt burdens or economic anarchy throughout Europe. It's enough to make the last year of European inactivity seem rather appealing.

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