Mario Draghi certainly seems to have hit the ground running when he took over as head of the European Central Bank 12 months ago.
Just two days after taking the reins of the world’s second most important central bank on November 1, 2011, the Italian surprised everyone by reversing the interest rate hikes prescribed by predecessor Jean-Claude Trichet.
Since then he has gone on to bring eurozone borrowing costs down even further to historic lows, pumped more than 1.0 trillion euros ($1.3 trillion) into the financial markets and devised a programme of controversial bond purchases that many see as marking a turning point in the eurozone’s long-running debt crisis.
Draghi is currently busy drawing up plans to entrust the ECB with supervision of Europe’s banks in a new super watchdog to be housed within the central bank.
And he is also one of a group of four top European officials — alongside EU Commission chief Jose Manuel Barroso, European Council head Herman Van Rompuy and Eurogroup president Jean-Claude Juncker — who are drawing up a blue-print on the future of the euro.
It has been a tough year, even for someone of Draghi’s experience and pedigree — he trained as an economist in the United States where he also worked for the World Bank before becoming director general of the Italian Treasury and subsequently governor of the Italian central bank.
And, of course, he is not without his critics, notably the head of the powerful German central bank or Bundesbank, Jens Weidmann, who believes Draghi’s anti-crisis measures have taken the ECB well beyond its mandate, which is to safeguard price stability in the 17 countries that share the euro.
While many see the ECB as the only European institution capable of acting quickly enough to extinguish the crisis fires, Draghi has insisted from the very beginning that the solution to the eurozone’s woes lies with the governments. Any action the ECB takes will simply buy governments more time.
But with politicians still unable to come up with a coherent rescue strategy, the task seems to have fallen to Draghi and the Financial Times saw him as a “commanding general in the battle to rescue the euro.”
ECB watchers believe Draghi — who appears a lot more suave and at ease with the press and more approachable than his predecessor Trichet — has indeed risen to the challenge and lived up to the nickname of “Super Mario”.
“Draghi has done a great job, providing effective backstops to the banking sector first in the form of the LTROs and then the sovereigns in the form of the OMT,” UniCredit analyst Marco Valli told AFP.
The LTROs or long-term refinancing operations were the means for injecting unprecedented amounts of liquidity into the banking system to avert a credit crunch and the OMT or Outright Monetary Transactions is a scheme for buying up the sovereign bonds of debt-wracked countries.
The Italian had proven to be “both politically smart,” in winning over German Chancellor Angela Merkel and the overwhelming majority of the ECB’s governing council for the OMT, the expert said.
And he has also proven “very pragmatic” in arguing that if markets did not reward countries for their reform efforts, the ECB had to provide the firewall, Valli said.
The analyst suggested that one of Draghi’s main assets when he was running for the ECB presidency was his in-depth knowledge of the banking sector and financial markets. He was, after all, a managing director of Goldman Sachs International.
“I think he confirmed that a good central banker today needs not only to be a good academic, but also understand the deep interconnection between markets, financial sector and the real economy,” Valli said.
Berenberg Bank chief economist Holger Schmieding said that after initially heading down the wrong path of simply injecting money into the banking system without addressing market concerns about a potential collapse of the euro, Draghi “finally changed tack in late July”.
“He is now tackling the euro confidence crisis head on,” Schmieding said.
The ECB “cannot save the euro. The major work needs to be done by governments through fiscal repair and structural reforms,” Schmieding said.
“But the ECB can provide a safety net and make sure that the euro does not fall victim to an irrational market panic. That is what the ECB is doing now.”
Marie Diron at Ernst & Young Eurozone Forecast said that Dragi’s actions had been “a major factor contributing to stabilise financial markets and thereby avoid much worse outcomes for the eurozone.”
But the ECB was not the sole actor and cannot save the euro on its own, she insisted.
The OMT programme has already been a great success in that it has significantly diminished the risk of a breakup in the short term.
“But the OMT is not the solution to this crisis. It is only a short-term fix,” Diron said.
Story first published: 4th November 2012