BREUGEL'S blog rounds up a number of blog opinions on the European Central Bank's move toward explicit conditionality in its policy making, like so:
In the Q&A session following his Introductory Statement Mario Draghi said that “the guidance that we have given to the committees of the ECB differs from the previous programme” [since] “we have explicit conditionality here”. “The first thing is that governments have to go to the EFSF”, but “to go to the EFSF is a necessary condition, but not a sufficient one”. “When governments have actually fulfilled the necessary conditions, namely have undertaken fiscal and structural reforms and applied to the EFSF with the right conditionality. At that point, we may act, if needed.”
As I've written before, this seems like a dangerous policy to me, particularly given the already large democratic deficit in the European Union. Having elected governments under the thumb of all-powerful Frankfurt bankers and economists could prove highly corrosive to the EU's political legitimacy.
It would be amusing to see peripheral governments try and flip the conditionality around on the ECB. Spain, Italy and the rest ought to pass ambitious reform and austerity plans, all of which would take effect if and only if euro-zone nominal output returned to the pre-2008 trend level. The ball would then be in the ECB's court; it could ensure adequate demand for the euro zone and get the reforms it wants, or it could keep policy too tight (which would undermine austerity and reform plans in any case) and bring down the entire enterprise.
The euro zone is mostly the ECB's to save in any case; may as well take away any excuse it has not to do its job.
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