European Central Bank President Mario Draghi's recent speech at the annual gathering of central bankers in Jackson Hole, Wyoming, has excited great interest, but the implication of his remarks is even more startling than many initially recognized.
If a eurozone breakup is to be avoided, escaping from continued recession will require increased fiscal deficits financed with ECB money. The only question is how openly that reality will be admitted.
The latest economic data have forced eurozone policymakers to face the severe deflationary risks that have been apparent for at least two years. Inflation is stuck far below the ECB's 2 percent annual target, and GDP growth has ground to a halt. Without strong policy action, the eurozone, like Japan since the 1990s, faces a lost decade or two of painfully slow growth.