When Mario Draghi’s name was first mooted as a successor to Jean-Claude Trichet at the helm of the European Central Bank, some worried that an Italian would throw monetary restraint to the wind and let the money presses run day and night. How wrong they were. The real worry is that, as Greek euro membership is in the balance and Italian bond yields hit record highs, Mr Draghi may be disciplined to an excess.
In his first press conference as ECB president, Mr Draghi proved that only the paranoid can put his hawkish credentials in doubt. A quarter-point cut in the interest rate is a conservative policy. The decision was taken unanimously – which is a tactical victory for Mr Draghi’s leadership, but no marker of a change to the ECB’s overly cautious approach.
The quarter-point cut was too timid for two reasons. The first is that the eurozone’s growth prospects are deteriorating at a frightening rate. With growth slowing and the quantity of money stagnant, deflation is a greater risk than runaway inflation. More decisive steps are needed to combat it.