An article in the Financial Times argues that Draghi is running out of legal ways to fix the euro

It first details 3 mistakes from the ECB:

  • First, the ECB should have embarked on large asset purchases and cut interest rates to zero early on in the financial crisis. It did neither.
  • Compounded by the decision to raise interest rates briefly in 2008 and in 2011, when the ECB governing council expected a recovery that never happened
  • Second mistake was Mr Draghi’s promise to buy eurozone government debt in the secondary markets, known by the official name of outright monetary transactions … at best a partial victory because it made everybody, including the ECB itself, complacent
  • The third mistake was to misjudge the dynamics of the fall in inflation rates late last year

It then goes on to outline what the author thinks the ECB should do:

  • The ECB should start by ditching the inflation target and replacing it with a price-level target
  • The ECB should starting buying equities and junk bonds, iIt should subsidise mortgages and consumer credit, it could fund an investment programme in transport infrastructure, energy networks and scientific research, by buying debt to fund such projects at zero interest rates … .all these measures would be effective. Most would be illegal
  • It should drop the silly macroeconomic model – known as the Smets-Wouters model, after its authors – on which it has been relying for too long

But …

  • My guess is that the ECB will not do any of these things. It will continue blaming eurozone governments for not implementing structural reforms. Eventually, it will adopt a programme of asset purchases that is too small, which it will abandon prematurely at the first sign of recovery.

More at the article (the Financial Times is gated, but can be read with a free registration)