Draghi launches last-ditch bid to rescue eurozone

Two-and-a-half years ago, European Central Bank chief Mario Draghi declared he would do “whatever it takes” to save the eurozone from imploding.Since then, as the euro’s chief custodian, Draghi has launched an array of measures to shore up investor confidence in the euro and to fire up the eurozone’s struggling economy, including cutting interest rates to historic lows and rolling out new, long-term cheap loans.Now Draghi has taken the unprecedented step of unveiling plans to spend about 60bn euros a month injecting new money into the eurozone, by buying up government bonds as part of a quantitative easing programme aimed at heading off a new threat - a bout of deflation that could send the economy into a downward spiral.“Today’s quantitative easing announcement is historic but it was also the ECB’s last trump,” said Carsten Brzeski, economist with the Netherlands’ ING Bank. “There are no more hidden aces.”The new era that the ECB has entered under Draghi also risks raising tensions between the bank and the currency bloc’s most powerful member and leading fiscal hawk - Germany.Draghi said the decision to buy government bonds was not backed by all the members of the 25-strong governing council, and that some did not believe it was necessary to launch the programme now. He did not provide details on which members.But German political leaders from Chancellor Angela Merkel down, as well as the head of the country’s central bank, Jens Weidmann, have expressed scepticism about the ECB’s bond-buying plans, worrying that they would reduce the incentive for debt-hit eurozone states to press on with tough economic reforms.“Whatever decision the ECB takes, it must not detract from the fact that the real growth stimulus must and can be set by politicians,” Merkel told the World Economic Forum in Davos as Draghi was unveiling his plans in Frankfurt.Merkel warned that the current high level of liquidity acted as a “smoke screen” that obscured the true state of economies. “We don’t see who is competitive and who is not,” she said.Hans-Werner Sinn, who heads the Munich-based Ifo economic institute and is a long-time critic of Draghi’s plans, was more direct: “This is unsound financing the state through printing money, which is illegal.”The ECB’s quantitative easing programme helps the Frankfurt-based central bank to catch up with similar schemes that were announced by the US Federal Reserve and the Bank of England in a bid to head off the economic fallout from the global financial crisis that emerged about six years ago.But unlike the US and Britain, the eurozone has failed to recover significantly from the financial crisis, with the currency bloc battling to remain on an economic growth path against the backdrop of falling consumer prices.However, having seen off the opponents to his plans, the question for Draghi now is whether the ECB’s new financial bazooka will be too little, too late to boost the currency bloc’s economic fortunes or be effective in the eurozone’s fragmented financial and economic systems.