The European Central Bank is making its reputation at this time of turmoil and crisis. Barely a month after the rejection of the European Union Constitution in France and the Netherlands, the EU Summit in Brussels ended in a surprisingly acrimonious orgy of national egoisms and no deal. Then the terrorists struck in London. With all this trouble, the ECB is showing itself to be an “anchor of stability” by steadfastly sticking to its mandate of insuring price stability.
Europe suffers from a profound crisis of confidence. Its economy, for example, cannot recover properly because consumers, lacking confidence in the ability of their political leaders to solve the economy’s manifold economic problems (budget deficits, pensions, etc.), are saving for a rainy day they feel is just around the corner—and businessmen are reluctant to invest, because they don’t trust government to make the necessary economic reforms.
The public’s lack of confidence in the EU’s political leadership is totally justified. Instead of actually doing something constructive about Europe’s essential problem --reforming expensive welfare states to ensure global competitiveness--Europe’s political leaders are hiding behind straw man arguments about “ultra liberal Anglo Saxon models,” and pressuring the ECB to lower interest rates as if European economic weakness were Frankfurt’s fault.
Europe’s finance ministers portray the ECB as closed to dialogue. When testifying before the EU Parliament’s Economic and Monetary Affairs Committee, Luxembourg prime minister and Euro-group chairman Jean-Claude Juncker said there should be “open and frank” talks between the euro-group ministers and the ECB—and French finance minister Dominique de Villepin said the same thing.