Draghi leaves without exit

It is a bit of the economic despair of Europe that some deplore that this is not enough. At the first iteration of QE, monthly purchases reached 80 billion euros per period. Other central banks, such as Switzerland, pushed rates below 0.75%.

We remember not long ago, when extraordinary monetary policies were reserved for recessions or financial panic, and the euro area was not there yet. No less than a monetary authority than the president

Asset

seemed to get to that when he Kvetched on

Twitter

the speed with which the ECB is acting against the Federal Reserve, because the euro will now fall against the dollar.

But in Europe, monetary policy is now the only economic recourse. The ECB also announced on Thursday that it would "distribute" interest on banks' reserves, exempting some of the reserves from the negative rate tax charged by the ECB for cash parking at the central bank. This should satisfy complaints from the Germans and other Northern Europeans that their reserved banks reserve the lion's share of the ECB's negative interest rate excerpts at around € 7.5 billion each year and are a necessary political condition for future rate cuts.

This should help Mr. Draghi's successor,

Christine Lagarde,

if she wants to go even further when she takes over in November. She is not a monetary technocrat and is facing a steep learning curve. Mr Draghi has deployed all his talents to avoid the challenge of creating new monetary stimulus for a euro zone in recession during his first weeks of work.

The problem is that this might not be Ms. Lagarde's biggest challenge. Draghi urged investors to wait for more negative rates in the future, just as economists begin to question the merits of this policy.

The negative ECB rate probably contributed only about 0.1% to the euro area's annual inflation, the chief economist of the ECB said.

Philip Lane

admitted in a recent speech. Banks complain that the tax on reserves makes it more difficult to attract investment compared to their US counterparts and that negative rates have not done much for Japan. Unless Europe grows again, how will Mrs. Lagarde regain positive rates?

The other problem that is emerging is that, as QE continues, apparently forever, the ECB will acquire an increasingly larger share of the debt of the governments from which it buys bonds. Draghi said Thursday that the central bank had considerable room for maneuver before reaching the limit it imposed on 33 percent of the debt issued by any borrower. .

But he wondered how the ECB could behave if it were to become a sovereign defect someday, and Lagarde should be very hopeful that she would never have to navigate that minefield.

The most important legacy of Mr Draghi is that the euro area is still intact. This is a remarkable achievement given the tensions the currency and its members have faced. Lagarde has a difficult behavior to follow, but at least she can read Sartre in her mother tongue.