Draghi's challenge to end euro dysfunction

Europe's financial plague was once confined to the excesses of individual nations, but now the single currency itself is sick – this is where Mario Draghi enters.

An Italian bank hoping to borrow money for a year or so has to pay an interest rate of 2.7 per cent. A Spanish bank pays 3.8 per cent. A German bank pays nothing at all (indeed, others are now paying Germans to look after their money). Something has gone horribly wrong. There may be a single currency but its constituent parts are in danger of slipping towards a messy divorce.

In earlier phases of the eurozone crisis, government bond spreads widened not so much because the euro itself was seen to be in terminal decline but, instead, because countries had their own idiosyncratic local difficulties: Greek government debt was spiralling out of control, the Irish banking system was heading to the rocks and Spain’s autonomous regions were, as it turns out, just a bit too autonomous. The choices were simple: austerity, bailout or default. These were specifically fiscal – indeed, political – options providing the perfect excuse for the ECB to take a back seat.



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