It is like a great many things forgotten now, but five years ago today the head of the ECB compared Europe to a bumblebee. That’s not quite right, however, as Mario Draghi really said the euro was like a bumblebee, but you’d be forgiven for mixing the two up. The purpose of his folksy analogy was so that Europe and its currency might forever be interwoven, the two inseparable in fact as well as theory.
We are reviewing, of course, Draghi’s promise on occasion of its half-decade mark. Being in charge of Europe’s central bank at that moment in time was no easy job. The Continent was beset by enormous problems seemingly on all sides. Not even a year before, the European banking system nearly fell into its own Lehman moment (what was it that actually happened on December 8, 2011?), leaving the ECB to scramble up nearly €1 trillion in “liquidity” (LTRO’s).
And still, it didn’t seem to be working. The banking crisis faded, as they always do, but the effects of it did not. By summer 2012, the euro seemed to be coming apart. The immediate problem was the euro’s apparently fatal tie between very different economic systems; this North/South divide, or PIIGS versus largely Germany. Peripheral European bond spreads had blown out, suggesting that there were deeper problems than simply short run liquidity.
On July 26, 2012, Draghi put himself in front of the cameras and declared to the world the euro would survive no matter what.
The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.
Was it? As human beings, we like to use the opportunity round numbers afford to take stock of things. And why not? Of big things there needs to be such accounting, and, if need be, reckoning.
On the basis of just peripheral bond spreads, at first glance, the promise was a triumph. A more determined view would only give it qualified success. Peripheral spreads have collapsed when compared to the worst of 2011-12, but they have never normalized to pre-crisis conditions. There remains five years later a distinct premium (that rose again, importantly, in the global downturn of 2015-16).
