The European Central Bank is waiting. It is waiting for further deterioration in the stagnant euro zone economy – with its 10 percent unemployment rate – before it lowers its key interest rate. It is waiting for euro zone governments to do something substantial about Greece and Spain. And it is waiting for a long-term plan for monetary and banking union before it offers the short-term measures needed to keep contagious fear from devastating the region. The ECB has long taken the euro zone governments to task – and rightly so – for their incapacity. Now it looks stuck in the same morass.
After three years of crisis, the ECB’s exasperation at being the only vaguely efficient institution in the euro zone is understandable. Time and again, it has forced governments to do what it thought was needed before agreeing to step in.
Now it doesn’t seem to know what to do in the face of the Greek political impasse and the Spanish banking mess. Spain, like Portugal or Ireland before it, refuses to request a bailout – even though it would be no more than a “bailout light”, a recapitalisation of the country’s banks. The euro zone governments are impotent – even though their European Financial Stability Facility could be put to use right away.
The best way to do this would be to allow the EFSF or its successor, the European Stability Mechanism, to help the Spanish banks directly. Most governments favour this solution. Central bankers do too, even though the ECB doesn’t explicitly say so. But Germany opposes it – or rather, wants other concessions before it agrees.
The ECB could once again push governments to do the necessary, even at the price of ignoring diplomatic niceties. But it is restrained by Germany’s opposition. Rather than act, it will wait until the euro zone’s governments reach a consensus on a grand plan. That won’t happen, if it ever does, before the end of June, at best. What happens in the meantime? Markets get more fearful, more demanding, and everyone keeps bluffing. Even though no one’s hand is stronger than a pair of 2s.