Europe Should Tighten Monetary Policy And Ease Fiscally

Mario Draghi and Wolfgang Schäuble are experienced people who know the euro bloc is in an impasse. The European Central Bank president and Germany’s finance minister need to seal a monetary and fiscal compact to guide Europe out of crisis.

Beset by immigration upheavals and enhanced support for unorthodox populist parties, euro members are relying on loose monetary and tight fiscal policy to generate recovery, cut unemployment and restore faith in European integration: a difficult-to-achieve combination.

Rather than persist with an approach that risks failure, Draghi and Schäuble, the continent’s two most senior economic policy-makers, should engineer tighter euro-wide monetary policy and simultaneously loosen fiscally. Reining back controversial plans for more ECB government bond asset purchases (quantitative easing) could be balanced by more pragmatic interpretation of euro bloc budgetary objectives, recognising that many southern states are already struggling to meet fiscal goals.

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