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Why ECB’s 'Super Mario' Could Struggle Without Luigi

the headquarters of the European Central Bank (ECB) in Frankfurt, Germany
Getty Images
the headquarters of the European Central Bank (ECB) in Frankfurt, Germany

The European Central Bank and its board members are gathering in the Slovakian capital of Bratislava for what could be one of the most interesting European Central Bank (ECB) meetings in some time.

While the mood in Bratislava is upbeat as the country celebrates a national holiday, the euro zone economy is anything but.

Unemployment continues to rise with data on youth unemployment in countries like Spain, Greece, Italy and Portugal something that should be keeping every politician, policy maker and business leader in Europe awake at night.

More and more small and medium sized businesses across Europe are going out of business at a time when the euro zone economy needs them to be confident enough to invest and hire.

Inflation is now significantly below the 2 percent goal and commodity prices sharply lower as data show a slowdown in major emerging markets across the world. That point was underlined when new data for Chinese manufacturing growth showed another slowdown.

(Read more: W hy an ECB Rate Cut Could Be Too Little, Too Late)

Against this backdrop, Europe's political class remains divided on how to kick-start the economy and get to grips with government debt levels.

The "austerity versus growth" debate rages on, with the austerity brigade under sustained attack as numerous attempts to cut spending and raise more revenue have in the main failed to reduce government deficits to below even the three percent mandated by the original stability and growth pact, let alone actual debt levels.

The sting has been taken out of the euro zone debt crisis by ECB President Mario Draghi who, unlike his predecessor Jean-Claude Trichet, has managed to calm investor sentiment via his unconventional support for the banking system and peripheral debt markets.

"We have increasing signs that fragmentation is receding in various parts of the euro zone," said Draghi in April as the dust settled on a controversial bailout for Cyprus that included a tax on uninsured depositors in the country.

"Since last July all indicators, take any spread, any indicator of volatility or liquidity have improved dramatically," said Draghi who kick-started this change with his promise to do "whatever it takes" to defend the euro promise.

(Read More: Sharp Euro Zone Inflation Fall, Joblessness Point to ECB Rate Cut)

But Draghi understands there is only so much he can do as head of the ECB. Draghi told CNBC at the last ECB press conference that the buck does not stop with him or the ECB on delivering growth and solving Europe's many problems. He then used a press conference in Dublin in mid-April to again point out that others are going to have to do more if all the ECB provided liquidity was going to find its way into the real economy.

"One needs the participation of other actors like the EIB (European Investment Bank), national governments and also national central banks, because they're the ones who ultimately know better than anyone else the quality of their credit, the quality of their banks," he said.

National governments are all trying to figure out how to boost borrowing by banks to small and medium-sized enterprises and consumers while at the same time demanding the very same banks hold more and more capital to avoid a repeat of the financial crisis.

This contradictory message being sent to banks, many of which are still sitting on huge amounts of non-performing loans, means the mechanism for getting funding from the ECB to the shop owner in Spain or small manufacturer in Italy remains broken.

The creation of a banking union remains a major problem for the euro zone, with Germany unwilling to sign up to a deal that puts German money on the line if a major bank in another country gets into trouble.

This is why the Cypriot bailout remains so important.Despite numerous assurances that taxing depositors in failed banks is no template for the rest of Europe, no one yet knows who would pick up the bill if another major bank fails.

There is little chance of this difficult issue, Cyprus aside, being resolved until well after the German election in September, which also marks the fifth anniversary of the collapse of Lehman Brothers.

Mario may well be "Super" to some, but his namesake from the popular Nintendo game had Luigi and a host of other friends to help him tackle whichever enemy was trying to stop him to save the day. Increasingly,experts are now saying Draghi also needs some help. But they also fail to see which political leader in Europe who is going to step up and say: "the buck stops with me, not Mr Draghi".

Contact Europe: Economy

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