What Would Have Happened in Europe if Mario Draghi Had Not Been There?

Abstract

In previous chapters we tried to prove that while the euro area had been pursuing budget balance and debt reduction, the mistaken methods by which such targets were pursued produced lower growth, less employment and therefore higher deficit and higher debt.

Fortunately for all, the monetary policy of the European Central Bank (ECB) structurally changed with the advent of Mario Draghi as President of the European Central Bank (ECB). Quantitative easing (QE), the lowering of interest rates and the strong determination to do “whatever it takes to save the euro” also strongly reversed European monetary policy leading to a positive realignment of the euro from more than 1.30 to around 1.10.

Some have criticized the positions expressed by Mario Draghi. For these reasons, we dedicate this chapter to estimating what would have happened if the ECB had continued after 2011 to pursue the perverse route adopted by the previous presidency, i.e. no QE, higher interest rates and the euro stuck at 1.34 to the dollar.

These counterfactual simulations have been made with respect to the euro area as a whole and, specifically, to the most relevant and significant countries namely Germany, France, Italy, Spain and Greece, i.e. covering more or less 80% of the euro area by gross domestic product (GDP).

It should immediately be said that without Mario Draghi’s monetary policy, the negative results would have affected Germany most of all. And this does not seem a paradox. In fact, Germany is the largest manufacturing economy in Europe, and therefore would have had far worse economic, employment and financial conditions than it experienced in this period as a result of the presence of Mario Draghi. And again not surprisingly, Italy would have followed suit with severe adverse effects. In fact, Italy is the second largest manufacturing economy in Europe. From this point of view then Germany and Italy should be in the lead among the supporters of the correct monetary policy implemented by the ECB in recent years.