The future of the Euro still lies in its past

Even policy decisions, such as Targeted Long-Term Refinancing (TLTR) and quantitative easing (QE), in the European style can change the future of the euro, which still lies on the boundaries of its institutional framework as stated in the Addendum of the Maastricht Treaty: (a) the main target is price stability as a relevant contribution of the European Central Bank (ECB) to growth and (b) the only instrument which can be used to create a monetary base is to finance banks. Draghi’s interpretation of the ECB Statute, that it may buy public bonds already in circulation, has been accepted by the European Court of Justice but the huge reaction by Germany still remains. My thesis is that the true problem for the future of the Euro is not to provide a wider interpretation of the ECB Statute to permit a better monetary policy, but to give the ECB a Statute similar to those of the other central banks, notably the Fed; this means the power to act as a lender of last resort “whatever it takes” (as Draghi said). People consider this possibility as beyond the political will of the main member States (Germany and the Netherlands, partly France). However, two other problems would remain unsolved to give the Euro full legitimacy as a paper money: a State behind it and a common fiscal policy. This means to move to a political union, which is less possible than the approval of a new ECB Statute. The existence of these problems does not mean that the Euro cannot survive, but that it depends, on the one hand, on the will of both the market and the owner of official reserve denominated in Euro.  On the other hand, it depends on whether the countries involved accept the negative effects of not having a full lender of last resort and a Euro area which is not optimal (OCA). This weakness preceded the birth of the Euro without a European finalized policy. This is why the future of the Euro still lies in its past, lacking leaders capable of filling the gap.  Collapse of the Euro is always possible.