German chancellor Angela Merkel was full of words of praise for the ECB but also for structural reforms in Central and Eastern Europe, presumably because this was the only spot on the old continent where politicians went ahead and implemented tough decisions that saved their economies after the financial crisis.
However, beyond the smiles and the champagne bubbles, one thing is clear: nothing really has changed and, what is worse, nothing is likely to change.
Financial markets are calmer now because central banks are keeping their fingers on the nuclear buttons of sovereign bond-buying – yes, even the ECB.
However, political leaders are not pulling their weight when it comes to reining in too-big-to-fail banks, reforming bloated welfare states, cutting privileges for various social and economic categories to make the economies more flexible or liberalizing labour markets.
As Marc Ostwald, a strategist at Monument Securities, told Emerging Markets: “All that central banks do is create a financial backdrop, an economic backdrop in which politicians are given some time to act.
“The problem of course is that we’re now in year six of this crisis and all that’s actually happening is that central banks, with more and more extraordinary and unconventional and totally off-the-wall measures, keep on being asked to buy time for politicians who hope the problems will all go away. And they’re not going to.”
It looks like – all across Europe and to some extent in the US – politicians’ main anti-crisis strategy is to keep their fingers crossed until the economy recovers on its own.
Some of them are more aware of this than others. Germany’s Merkel issued an ominous warning in Davos when she said: “Another bubble that we create, another deep crisis for the global economy will be very difficult for our democracies to master because people lose trust.”
It’s time for politicians to uncross their fingers and turn into true leaders, capable of carrying out reforms that might not keep them in office – but will avert the next crisis.