Earlier this week, head of the European Central Bank (ECB) Mario Draghi announced the start of a quantitative easing program that aims to stave off deflation in the Eurozone. Over the objections of the Germans who want a strong currency that they were promised when they signed off on joining the euro many years ago, Draghi plans to flood the market with up to 1.1 trillion euros over the next 16 months in the hope of stimulating the economy and preventing deflationary spiral. Unfortunately, this action and the risks that it entails, is merely the latest attempt to paper a Europe that is economically stagnating.

That being said, one can appreciate the conundrum that Draghi finds himself in. For years he has tried to exhort the national governments to engage in fundamental economic reforms to make their economies more dynamic, to no avail. The reason that European economies are stagnating is largely due to the fact that they are over-regulated. In any case, the simple fact of the matter is that the current regulatory state in Europe has created a lot of powerful winners in the system, and these are preventing any serious reform efforts that would fundamentally change the trajectory of the European economy from a sclerotic, stagnant one to a dynamic one. A stagnating (or recessionary) economy is one that is going to be susceptible to deflation (see Japan). Draghi is certainly right to be concerned about deflation. Once a country or region enters a deflationary spiral and expectation of deflation become embedded, it can be very hard to reverse. History has shown that prolonged deflation leads to depression, and in extreme cases can lead to political instability, wars, revolutions, etc.

However, what Draghi is doing is trying to use monetary policy to take the place of economic reforms. Since the national governments won’t act, he is doing what he can to try and mitigate the damage. Some might plausibly argue that he has no choice. However, one should not view what he is doing as a long-term positive development for the European economy. By mitigating the pain, he is reducing the impetus for reform. As difficult as it is for some to admit, recent history has shown that most European governments will only engage in reform when they absolutely have no choice. And even then it will be the least amount of reform that they can get away with at that moment. Perhaps in the coming years a global recovery generated by the U.S. or China or some other region will come along and lift the European economy a bit. But until the national governments engage in a full blown economic reform program which they and their populations show no indication of being willing to embrace, Europe will never be a dynamic leader and driver of global economic expansion. Rather it will get pulled along by economic forces generated outside of it, for better or worse. All of the monetary stimulus in the world won’t change that.