The Global Economy in Turbulent Times

CHAPTER 55 European Union: Draghi’s Bumblebee¹

Mario Draghi, president of the European Central Bank (ECB), can be forgiven since he is neither English nor an entomologist when he compared euro’s growing pains with the impossibility of flight by the bumblebee. The ECB president was reported to have said:

The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does. So the euro was a bumblebee that flew very well for several years. And now—and I think people ask ‘how come?’—probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis. The bumblebee would have to graduate to a real bee. And that’s what it’s doing.²

But it was his pledge to help in this transformation that attracted market interest: “The ECB is willing to do whatever it takes to preserve the euro and believe me, it will be enough.”³

Unlike politicians, markets do give deference to the ECB since it can match bold words with actions because of its powers to print unlimited euros. As to be expected, the very next day, Italian and Spanish bonds strengthened (Spanish 10-year bond yield fell below 7 percent, and Italian bonds, down to 6.03 percent); and the benchmark index for Italian stocks closed 5.6 percent higher, and Spanish, up 6.1 percent.

Euro Does Not Fly

Dr. Draghi’s credibility was tested after the ECB’s recent meeting when he failed to deliver and ...