The European Central Bank May Have to Defy Germany

Over three years, Mario Draghi has cut interest rates to record lows, embraced a sliding euro, and pledged to buy corporate bonds held by banks to give them more money to lend and so trigger growth. The European Central Bank president’s campaign doesn’t seem to be working. The 18-nation euro-area economy is on the brink of a third recession in six years, and inflation is at 0.3 percent, well below the ECB’s target of just under 2 percent. Investors are betting the downward pressure on prices in the euro zone will continue, raising the specter of a Europe beset by the kind of deflation that dogged Japan for years. Without at least some inflation, it’s hard for companies to raise prices and hike wages.

The ECB boss ended Europe’s sovereign debt crisis by promising in 2012 to do “whatever it takes” to save the euro. Investors ask if he’s willing to do the same to save the economy. That leaves Draghi under pressure to introduce a full-bore quantitative easing program, one that would make more money available for cheap lending by having the ECB buy government bonds held by the banks, companies, and others.