How Europe Saved Obama
That’s the title of a piece that I wrote for the National Interest, responding to the ECB decision to undertake unlimited bond purchases. There’s been lots of news since then (on which I’ll write if I get time), but it only confirms the key point – Romney’s dwindling chances relied heavily on a European economic crisis happening before November, and that is now highly unlikely. The key paras
When Barack Obama celebrates his second inauguration next January, the man who did most to ensure his election victory is not likely to be there. But perhaps the president should make a note to reserve a seat for the head of the European Central Bank.
With no convention bounce and little prospect of a convincing win in presidential debates, challenger Mitt Romney’s hopes have been centered on an October surprise. Under the current circumstances, that means an economic shock sufficient to discredit Obama’s promise of a slow but steady recovery from the economic crisis. Until last week, that shock seemed likely to come from Europe. The possibility of a Greek exit from the euro, seemingly off the agenda a few months ago, had reemerged as a major factor in the investment plans of U.S. companies.
Last week, however, new ECB president Mario Draghi finally bit the bullet. Announcing that “the euro is irreversible,” Draghi committed the ECB to unlimited purchases of government bonds. Weidmann, the sole dissenter on the ECB board, has so far not carried out his threat to resign.
The ECB decision marks an effective end to the euro-zone sovereign-debt crisis, though not to the European depression or to the failed policies of austerity. At best, the euro zone is now in the same position as the United States and Britain: there is the prospect of a sluggish recovery but no immediate danger of collapse. A true recovery will require both a shift in central banking policy from targeting inflation to targeting nominal GDP, which looks a bit likelier now, and a shift from austerity to fiscal stimulus, which does not.