Draghi's Dangerous Bet: The Perils of a Weak EuroBy SPIEGEL Staff
The recent decision by the European Central Bank to open the monetary floodgates has weakened the euro and is boosting the German economy. But the move increases the threat of turbulence on the financial markets and could trigger a currency war.
The concern could be felt everywhere at this year's World Economic Forum in Davos, the annual meeting of the rich and powerful. Would the major central banks in the United States, Europe and Asia succeed in stabilizing the wobbling global economy? Or have the central bankers long since become risk factors themselves? The question was everywhere at the forum, being addressed by experts at the lecturns and by participants in the hallways.
Central banks, said Harvard University economics professor Kenneth Rogoff, are surely the greatest source of uncertainty in the eyes of the financial markets, a statement that was not disputed by others on the panel. The fact that monetary policies at central banks in the US, Europe, Japan and elsewhere are drifting apart poses a major risk for the stability of financial markets, he said.
"It's important for the international community to work together to avoid currency wars which no one can win," Min Zhu, deputy managing director of the IMF, told the conference.
Yet last Thursday's decision by the European Central Bank to purchase €60 billion ($68 billion) a month in government bonds through September 2015 has increased the threat of exactly that kind of monetary conflict. It will further flood the markets with liquidity and will continue to apply downward pressure on the value of the common currency.
A weak euro, of course, is precisely what ECB President Mario Draghi wants. It makes exports to other currency areas cheaper, thereby increasing the competitiveness of euro-zone countries. At the same time, it increases the price of imports, thus reducing the threat of deflation.
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