Letter: Good minds at work in Europe
Mario Draghi, president of the European Central Bank, speaks during a press conference (Dec.8, 2011). Credit: AP
The almost enshrined lament at Alan Greenspan's "irrational exuberance" is once again echoing in the canyons of Wall Street and other major stock markets in Europe and Asia, with the wild gyrations experienced in the last few months ["Money fix," Business, Jan. 2]. Stoked by a sudden surge in consumer confidence, strong retail sales and strong job creation in the United States, the euphoria continues both at home and abroad.
Wisely, Newsday, in a series of recent editorials, has introduced some clarity in a troubled economic environment ["Bank's action is a eurozone lifeline," Dec. 23, and "Euro's crisis demands action," Dec. 1].
Clearly, the coordinated efforts of the Federal Reserve and five other major world central banks to increase the dollar's liquidity in world capital markets could not have come at a more critical time to prevent national defaults and bank failures in the eurozone and beyond. However, for this and other measures of monetary policy to be sustained in the long run requires a major overhaul at the European Central Bank, particularly as it relates to the pivotal role of a true central bank, to act as the lender of last resort to ensure the stability of financial systems.
In that regard, Newsday's editorial wish that the central bank would be "unfettered in the face of crisis" with "a chief as bold and flexible as Ben Bernanke" ["Eurozone is heading downhill fast," Editorial, Nov. 28] may be about to be partially realized.
Mario Draghi, the new president of the European Central Bank, shares an intellectual heritage and orientation with Bernanke, as well as other financial gurus, including Stanley Fischer, head of Israel's central bank, and Olivier Blanchard, the International Monetary Fund's chief economist. All are MIT alumni, having earned their PhDs in the 1970s (or thereabout). Initially, upon taking office, Draghi seemed reluctant for the European Central Bank to take on the role of lender of last resort for some illiquid governments, but he has not categorically ruled this out. This bodes well for the foreseeable future.
John Waldo Lombardi, Woodbury
Editor's note: The writer is an emeritus professor of economics at Long Island University.
