Mario Draghi reminds us how fare there is to go

The reaction to European Central Bank President Mario Draghi’s speech last Thursday has been varied to say the least. Even the markets appeared in two minds, at first dipping in response to more of the same from the European Central Bank, then picking up again after 24 hours in which it apparently was decided there was more to the proposal than first thought.

As the Eurozone crisis ambles on much longer than most doomsayers had expected, it is important to take a step back to evaluate each move carefully. Increased involvement by the ECB could be part of the solution at last, but it is going to require widespread support and commitment from individual governments that seems almost impossible to garner.

Much criticism of Draghi in the press has been on the ECB’s failure to act. As time goes on, it is simply not enough to make promises and suggest possible solutions. They may generate brief hikes in confidence in the euro currency, but less and less so as hope gives way to disillusionment. We have heard so often the promise to “do whatever it takes” to save the Eurozone, that it starts to seem like nothing can be done.

However, this is undoubtedly an area in which rushing in head first can be fatal. Especially if it is going to mean quite a significant shift in the relationship between nations and the ECB, Draghi would be advised to take his time.

That said, when a decision is reached, it is going to need to be one that does finally help to pull out of the interminable descent of the last five years. A key factor of what Draghi has suggested is the requirement that struggling countries request assistance and fulfill the conditions the bail-out funds require of them. So it is not simply a case of the ECB stepping in to buy bonds and attempt a single-handed rescue. Most likely, nations such as Spain or Italy will need to commit to implementation of further austerity measures or European regulation of their finances.

This will mean apprehension from the struggling governments, such that engaging the ECB will for most be the very last option. That is perhaps not a problem for Draghi, for it is vital that this be a decisive move that enacts real change, rather than a mere boost to an economy whose overall trajectory will remain the same. The problem is that such a change is going to be incredibly hard to swallow for governments and populations alike. If the price is too great, then the ECB will be powerless to stop the crisis deepening.

Moreover, if the aim is to move towards growth by lowering borrowing costs, then it is not clear whether the conditions of the bail-out funds will not rather hamper the governments’ ability to restart their economies. This is, after all, more or less unchartered territory.

What characterises the ongoing debate is uncertainty. Commentators, politicians and economists have had to present their ideas strongly and with conviction. But the multitude of opposing views and reactions demonstrate that such convictions must be weaker than they may try to seem. Such is the paradox that Europe faces now. It needs a clear way forward out of this debacle, a path that it can follow with a faith that it is leading the right way. It needs this because governments and European institutions need to be in agreement if any plan is to work. Yet the very nature of the problem means that disagreement is inescapable.

Alex du Sautoy