In Europe, the Wardrobe is Empty

Posted: Aug 03, 2012 12:01 AM

A week ago, Mario Draghi stunned the world with his announcement that he had a whole new wardrobe to show off to all who cared to see. 

For quite some time, the old wardrobe consisted of lower interest rates which intrigued a few folks, and also the direct purchase of sovereign debt which enticed everyone.  Considering that he hinted the purchase of specific debt, namely Italian and Spanish, would be made by the EFSE and then the ESM, he gave hope to a floundering continent.  (But remember, hope is not a strategy.) 

Unfortunately, Mario’s shopping spree would come at the expense of Germany, who has recently said “nein” to any new clothes Emperor Mario wished to purchase. 

But the world waited with bated breath as the mainstream media reported just before the opening statement that a new wardrobe was to be unveiled. 

Could Mario let us down? 

After all, isn’t Mario the Emperor of Europe?  (From Prince to Emperor in just one day!)  As the official photograph reflected, the Emperor looked haggard with bags under his eyes, hunched shoulders, and a turned-up left collar, certainly not the fashion statement everyone had expected. 

Then he spoke and promised a plan that would continue to promise to create a plan that promised to create a plan and a solution, shortly, if only the other countries did their part.  Had the Germans made their point and influenced Mario? 

Or, had Emperor Draghi simply realized that saying and doing isn’t necessarily the same thing? 

The options available to Central Banker Mario are the very same choices that are available to every other central banker: lowering interest rates, buying bonds, or devaluing currency. 

Sadly, for over two years each of these actions has been taken, resulting in no success.  Hoping for something new makes for good press, but not good policy. 

Knowing full well that his prior statement was for jawboning purposes only, Emperor Draghi appeared in front of the world press with an empty closet. 

The body language spoke volumes as the “within our mandate” statement was attested over and over again. 

The financial markets were obviously disappointed that the Emperor did not purchase any new clothes, as they went to red in stocks, bonds, commodities, and even precious metals. 

Imagine how bad it would have been, or how embarrassing, if in addition to the media at the ECB meeting, it had been attended by the fictional child who would have pointed at Emperor Mario and said “But he isn’t wearing anything at all!”