ECB Settles for Steady as She Goes

Mario Draghi, president of the European Central Bank, speaks at a conference of the German Federation of Industry on Sept. 25, 2012 in Berlin, Germany

Photograph by Sean Gallup/Getty Images.

It’s not much of a surprise, but the European Central Bank announced that it’s not changing any interest rates at its meeting today even though continent-wide economic conditions clearly prescribe looser policy.

But the decision comes straight from the ECB’s disastrous self-imposed dual mandate. While the Federal Reserve targets inflation paired (supposedly) with employment, what the ECB is now doing is targeting both macroeconomic stability and … Spanish and Italy fiscal and labor market policies. They don’t want the eurozone to collapse and they don’t want the level of human misery to get too out of control, but they really do want the Spanish and Italian governments to implement unpopular Irish-style policies. That means keeping money tight enough to keep the southern elected officials’ feet to the fire, and keeping conditions bleak enough that Angela Merkel can tell German voters that the Spaniards are paying for their sins.