European leaders are uncertain about what direction to steer their economy as Mario Draghi ponders what kind of monetary policy the region needs following years of austerity. Draghi, the Governor of the European Central Bank (ECB) has met his objectives once again, and euro zone stock markets celebrated yesterday with modest gains following Draghi's comments in Jackson Hole, Wyoming (USA).
The good news comes at a critical time for Europe. France and Italy are the second-strongest economies in the region, but they are at the end of their ropes because undone reforms are threatening growth and recovery in the two nations. The question vexing European leaders is how to recharge the economy. Throw away the idea of consolidating national tax strategies? Or have a more expansionist tax program? This is what Rienzi and Hollande want. Both have neglected to carry out much-needed reforms. Manuel Valls has named a new leader that, unlike the current man in charge, will back the changes that need to happen and not try to pick fights with Merkel. The German Chancellor is the only leader who can afford the luxury of pursuing a fiscal policy based on stimulus spending, becuase in Germany they have streamlined their tax system and carried out massive reforms in 2010.
Merkel is looking for support from Rajoy, who is trying to make himself look like the model student. At this point, Europe is at a crossroads as it weighs how to trim deficits and national debts while also growing economically. An expansionist monetary policy and new reforms could be the right roadmap.