Bloomberg View — Stopping Europe's Descent Into Deflation

Europe also needs to rethink its fiscal policy. That's beyond the remit of the ECB, though it wouldn't hurt for Draghi to demand changes. Again, he took a step in that direction in his recent speech, saying that fiscal policy should "play a greater role" in boosting demand. Then he took a step back by saying that Europe's Stability and Growth Pact allowed sufficient room to maneuver, and that it would be "self-defeating" to abandon it. No. It isn't a matter of finding room for maneuver. This pact, which tells governments to cut government borrowing regardless of impending deflation, needs to be scrapped.…

Monetary policy can and should do more. That's the responsibility of Draghi and his ECB colleagues. If they want to, Europe's governments can repair their fiscal policies, as well -- by scrapping the fiscal pact rather than fiddling with it. If Europe's long recession gets worse, it will be because its leaders saw what was happening yet chose not to act.

Bloomberg View
Stopping Europe's Descent Into Deflation
By The Editors