With Mario Draghi, Italy’s central bank chief, looking almost certain to become its next president, the European Central Bank is set for a significant change of style – but not necessarily in strategic direction.
Source: goldmansachs.com
Goldman Sachs
Under Jean-Claude Trichet, whose eight-year mandate expires on October 31, the ECB secured an inflation-fighting reputation in the tradition of Germany’s Bundesbank.
During the euro zone debt crisis,the ECB acted as a crucial backstop, pumping liquidity on a huge scale into the banking systems of Greece, Ireland, Portugal and Spain.
More recently, it has taken a much tougher line in insisting politicians take action themselves.
Mr. Draghi, who won backing for the top ECB job on Tuesday from President Nicolas Sarkozy of France – with Berlin’s acquiescence – has a pedigree, first, as a Treasury official who forged the way for Italy to join the euro in 1999 and, later, as a central banker.
In recent interviews, he has seemed impatient to withdraw the exceptional measures the ECB has taken to support economies and banking systems, arguing that the best way for governments to win financial market support is with credible fiscal policies.
“If communication is crisp, if policy action is firm and if the commitment is perceived as persistent, markets are certainly not going to be hostile to that,” he told the Financial Times last December.
More recently, Mr. Draghi has hinted he would support further ECB interest rates rises after its decision this month to start tightening monetary policy ahead of the US Federal Reserve and Bank of England.
His tough message has helped to boost his standing in Germany, where popular angst over the public finances of the euro zone's southern members, including Italy, is ingrained.
Mr. Draghi “knows exactly what the Germans want to hear”, says Ulrich Kater of Deka Bank in Frankfurt.
Unlike Mr. Trichet, Mr. Draghi is also an accomplished academic economist.
“He brings a technical expertise to the job more in line with what we see at the US Fed under Ben Bernanke,” said Marco Annunziata, chief economist at General Electric .
With his appointment, the ECB would have southern Europeans in its top two positions – Vítor Constâncio, its vice-president, is Portuguese.
One consequence is that Rome may have to offer Lorenzo Bini Smaghi, an Italian executive board member, Mr. Draghi’s job at Italy’s central bank.
A French nominee could then take his job, ensuring that all the big euro zone economies remain represented on the board.
One shadow hanging over Mr. Draghi is his time as vice-president of Goldman Sachs from 2002 to 2005.
A year ago, in response to critical media reports, he said he had nothing to do with complex financial swap deals Goldman Sachs conducted for the Greek government which, critics allege, helped disguise the size of its public debt.
Mr. Draghi does not yet have a track record in managing international economic crises to match that of Mr. Trichet, who played a decisive role a year ago in persuading governments to launch a €750 billion euro zone rescue plan.
It is also unclear whether he will have the diplomatic skills of Mr. Trichet, who managed, more or less, to achieve an ECB consensus over decisions taken during his presidency.
As chairman of the Financial Stability Board, a panel of global regulators, Mr. Draghi’s style has been more direct – suggesting he would take a harder line with Europe’s bank supervisors.
In the Machiavellian world of Italian politics, meanwhile, he has formed a difficult relationship with Silvio Berlusconi’s center-right government, criticizing its failure to reform the sluggish economy.
Such was the standing of the man dubbed “Super Mario” in the Italian press that when Mr. Berlusconi’s coalition came close to collapse last year, he was seen as a candidate to step in as caretaker prime minister.
Mr. Berlusconi survived, and then had no choice but to be seen promoting one of Italy’s most prominent international figures to replace Mr. Trichet.