I won’t recapitulate my core views on the euro crisis (see this talk), but here are a few points:
1. The aggregate numbers are workable, but the eurozone needs a unified solution of some kind. Putting any single country “in charge” would yield a solution, although the quality of solution would vary with the country. Still, it would be a solution.
2. The danger is that quasi-solutions will appease all countries in the short run, not really solve the core problems, and thereby walk the eurozone further down the plank of doom. This is the outcome I have been predicting, though it is not necessary in any logical sense.
3. The new plan puts the ECB in charge, and in fact gives the ECB semi-dictatorial powers over the weaker eurozone economies. If Draghi says “jump,” you had better jump. Many will consider this an untenable abrogation of democracy, see the remarks of Matt Yglesias and more generally ponder the Rodrik trilemma. I don’t know how long this arrangement can last. Up through now, and still, my view has been that at least one of these democracies will “crack” and pull the plug on whichever non-democratic dictatorial scheme happens to be in place at the time. I don’t see that the chance of that has gone down.
4. Some portray this as a loss for Germany and the Bundesbank, but I wonder. I tend to see the ECB as the new enforcer. The more the ECB is responsible for the money it hands out, and the larger the role the ECB takes in governance of the weaker economies, the more the perspective of the ECB will approach that of Germany. That the ECB can “money print” its way out of insolvency I don’t see as so important for the true incentives facing ECB leaders.
5. By the way, the ECB has renounced its senior place in line, at least for the new bond buying, how generally I am not sure from published reports.
6. Does the ECB have the stones to cut off or not start up with countries violating the terms of their bailouts? Greece and Spain are already way out of line. Yet it seems this new plan is directed at Spain, at the very least, so how credible can it be? I say the ECB becomes even more of a fudger.
7. The notion of “unlimited” but “sterilized” bond-buying interventions is a problematic one. How much “Dran-O” is there to remove the newly created money? Surely the ECB can’t respond by selling from its current portfolio of periphery bonds.
8. The afflicted countries now have an incentive to load up on short-term debt.
9. The theory of bureaucracy suggests that Draghi has delivered somewhat different messages to Merkel and to the periphery nations as to what this scheme really will mean.
In a few words I would say “The ECB as Old Testament God.” He wasn’t omnipotent either, and in Genesis you also will find intimations of henotheism.
Let’s see how good a job they do.