Everywhere in Europe, with the exception of the Bundesbank in Frankfurt and other bastions of monetary orthodoxy, Mario Draghi has been hailed as the last hope of the single currency. On 6 September, the President of the European Central Bank announced that his institution will commit to buying the sovereign bonds of distressed countries in unlimited quantities, if those countries make an official request to Europe’s bailout fund and submit to strict and effective conditionality. The initiative will enable countries Spain and Italy to refinance their debt without paying exorbitant interest rates, however, in return they will have to clean up their public finances.
When he was appointed to lead the ECB, Bild gave Draghi the gift of a spiked helmet in acknowledgement of his attachment to German style monetary stability. Today, ten months later, the Italian is engaged in a war of words with Bundesbank President Jens Weidmann, who has said that such a debt buy-up would be “like a drug”. With a policy that strikes a balance between austerity and a more flexible interpretation of the rules of the ECB, Draghi has now assumed a pivotal role in the Eurozone crisis.
Little by little, the manner in which the Eurozone is managed has begun to change. Back in the days of the all powerful Merkozy duo, policy was negotiated and decided by the European Council, while the ECB, led by France’s Jean-Claude Trichet, toed the line and kept its reservations to itself. Today the German Chancellor is surrounded by François Hollande, Mario Monti and Mariano Rajoy — leaders whose national interests diverge significantly from those of Germany — while confidence in the Council’s ability to overcome the crisis has been undermined by two years’ of ineffective measures. Now that the markets are demanding the “big bazooka” which will necessarily have to be loaded by the ECB, Mario Draghi has become the new deus ex machina.
Does this mean that Europe’s politicians have been sidelined by bankers and non-elected technocrats? Not quite. Let’s not forget that an evolution in the power struggle between Europe’s leaders and Mario Monti’s insistent demands for an alternative to the “Greek style” bailout created a favourable climate for Draghi’s victory (or provisional victory) over Weidmann. In the coming weeks, Europe’s leaders will have an opportunity to reassert control on the occasion of the submission of the report on “a fully fledged political and monetary union” and the banking union project, two initiatives that were approved at the EU summit in June.
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If politics is to reassert its rights, Europe’s leaders will have to stand firmly behind decisions that are informed by a clearly defined strategic vision. Either that or the European population will be tuning into Mario Draghi’s monthly press conference to see what is really going on.