Draghi Says “Print”

FRANKFURT—European Central Bank officials signaled they are prepared to dramatically ramp up the ECB’s crisis response by renewing the central bank’s dormant government bond-purchase program.

“Within our mandate, the ECB is willing to do whatever it takes to preserve the euro and, believe me, it will be enough,” ECB President Mario Draghi said in a speech in London, one week ahead of the ECB’s next policy meeting.

His comments were echoed by French central bank head Christian Noyer, who said in an interview that “it is very clear that we will do everything so that the transmission of our monetary policy takes place in the best possible conditions for our economies.” …

Thursday’s comments were a reversal from cautious remarks Mr. Draghi made just three weeks ago that appeared to rule out new ECB action.

I wrote about this last Tuesday (“The Scarlett O’Hara Approach To Solving The Eurozone Crisis“) and, as if on cue, Mr. Draghi says they will print money to bail out it’s members.

Oh, Hallelujah! At last, the Europeans have come to their senses. Spain’s and Italy’s bond rates dropped as if by magic, and the worlds’ equity markets have rallied—S&P up about 1.5% as of this writing. Will the Germans go along? According the articles, Draghi has the votes. We know the Germans will protest loudly, but no doubt they will embrace their collective guilt and relent.

What a travesty.

The Germans are, of course, entirely correct in their views of monetary policy. Diluting the problem with fiat euros does nothing to solve the problems other than to temporarily put a stop to the panic in the sovereign bond markets. As a result creditors will be cheated and debtors (those government members of the EMU) will benefit from lower interest rates and the additional euros that will flood the markets and make debt repayment cheaper for them. It will also lead more malinvestment as capital is sucked into the black hole of new investments that will later be found to go bad because they were based entirely on fake euros, not organic economic growth.

If nothing else it shows that politicians and central bankers are, if nothing else, predictable. As I pointed out in my Scarlett O’Hara piece, printing money is really the only thing they know how to do.