The European media refers to Draghi as “Super Mario” for his energetic style. The question is whether he can live up to the nickname.
The core of his challenge is this basic impasse: Greece, one of the 17 countries that use the euro currency, is essentially insolvent, paying its debts only with the help of bailouts, and Portugal and Ireland are in dire straits as well. The ECB has declared it unfathomable for one of its member nations to default on its debts, a position Draghi has echoed. Yet the willingness of the governments of stronger European nations to continue with bailouts may be reaching a breaking point.
Draghi is no stranger to the issues in play. He has been leading the Italian Central Bank through the crisis, and thus has had a seat at the table on major ECB decisions. He also is chairman of the Financial Stability Board, a group of the world’s top central bankers and other financial officials that aims to coordinate global efforts to rein in risks to stability. Perhaps an even more relevant qualification: He was head of the Italian Treasury in the 1990s, when the country faced the risk of defaulting in a crisis of its own, and knows the pressures that the leaders of troubled European nations are coming under.
Those crisis-management skills will be tested at a moment of a shake-up among those addressing the European debt crisis. The eight-year term of the current ECB president, Jean-Claude Trichet, will come to an end Oct. 31. The politically connected Dominique Strauss-Kahn has resigned as head of the International Monetary Fund to fight sexual assault charges in New York. His likely replacement, Christine Lagarde, is currently the French finance minister.
Draghi has won respect among central bankers on both sides of the Atlantic, who view him as a thoughtful participant in international discussions with a knack for guiding groups toward agreement. He helped bring officials from emerging nations such as China and India into discussions on financial policy, while navigating differences between the more traditional powers of the United States, Japan and Europe.
“He has done a very good job focusing on getting consensus around good policy from a disparate group of people and not letting disagreements cause everything to lock up and slow down,” said Donald Kohn, a senior fellow at the Brookings Institution who was the No. 2 official at the Fed until last year. “They have very serious problems in Europe right now, and I can’t think of a better person to deal with them.”
At the same time, there will be challenges. Germany was angling to have one of its countrymen lead the ECB. Draghi will be the third president of the central bank, yet none of the three has come from Europe’s largest economy. Germany’s strongest candidate for the job, Axel Weber, withdrew from consideration earlier this year, saying that he held different policy views from other leaders of the central bank.
The German public and political leadership is already resisting further bailouts, and may be particularly skeptical of any advocated by an Italian. Although Italy hasn’t faced the same sort of debt crisis as Greece or Portugal, it has a much higher level of indebtedness than fiscally conservative Germany.
More broadly, while Draghi is well-respected among central bankers and the financial community, he will need to develop skills for influencing skeptical politicians and representing the ECB to the public.
He appeared peevish and defensive in an appearance before the European Parliament when questioned about his time at investment bank Goldman Sachs, where he worked from 2002 to 2005. He testified that he was not involved with advice Goldman gave the Greek government that helped it hide its degree of indebtedness.
“I mean, if you already know it is not the truth, then why should you ask the question?” he said, later acknowledging to reporters that the hearing was his “first experience with democratic accountability” and one of the “greatest learning experiences” he has had.
And although Draghi, like Bernanke, earned a PhD in economics from the Massachusetts Institute of Technology (Draghi in 1977, Bernanke in 1979), he does not have the same extensive academic background as Bernanke, who spent more than two decades studying monetary history before becoming a central banker. Draghi has spent most of his career as a practicing crisis manager.
As such, his views on how best to guide monetary policy, the core of any central banker’s job, are not as well understood. In his testimony to the EU Parliament, he suggested that the ECB under his leadership will continue its monetary policy.
In his testimony, Draghi made clear that he is, like his predecessor, oriented toward removing the low-interest-rate policies that were put in place to address the global financial crisis in 2008. “I see no reason for introducing changes to the way we have conducted monetary policy in the past 12 years,” Draghi said in his testimony.