European Central Bank Does Nothing

Mario Draghi, president of the European Central Bank, speaks to the media on Oct. 24, 2012 in Berlin, Germany

Photograph by Sean Gallup/Getty Images.

The European Central Bank did its special thing today where it holds interest rates steady even though the economic situation has deteriorated.

They’ve pulled this kind of stunt so frequently that it’s now customary to leap immediately to the sophisticated reasons for this (Greek elections, Spanish politics, etc.) but I think it’s worth dwelling a bit on the naive view that this is a mistake. When you’re driving a car, you have to turn the steering wheel when the road turns. You drive straight when the road is straight. But each particular possible orientation of the road is associated with a correct orientation of your wheels. You don’t just let the road veer left and shrug, thinking that it’s not your role to bail out low-quality road design.

The ECB is playing a more complicated game than old fashioned “loose money to counteract downturns, tight money to counteract inflation” monetary policy. And you have to ask yourself: Is it working? Has this delivered prosperity? Made European politics work better? I don’t see it.