Mario Draghi’s term as president of the European Central Bank ends in October. It has been a tumultuous tenure; among other things, he very clearly saved the euro from collapse in 2012-13, which arguably makes him the greatest central banker of modern times.
But I come not to celebrate Draghi but to ask about the state of the euro as the age of Draghi draws to an end. This isn’t a rant. I’ve long been a euroskeptic, and there has been immense suffering in Greece, and to a lesser extent in Spain and Portugal. But Europe’s overall performance since the 2008 crisis has been better than I believe most U.S. observers realize.
The big problem now, I’d say, is the extreme fragility of Europe with respect to any future shocks. In the years since Draghi came in, the euro area has done surprisingly well in restoring growth and regaining employment losses. But this success rests on extremely low interest rates and an undervalued euro.
What this means is that Europe has essentially no “monetary space” – there is nothing more it can do if something goes wrong. If there’s a Chinese recession, or Trump slaps tariffs on German cars, or whatever, what can Europe do? The ECB can’t significantly ease monetary policy. Fiscal expansion could help, but it would have to be led by Germany, which seems implausible.
Still, it seems worth talking about how things have gone so far, which is better than many imagine.
Start with growth in the euro area. Here I show real GDP growth since 2007, compared with growth in