"One needs to be at peace with one's conscience. If you are convinced something ought to be done, it must be done."
The resulting turbulence will have a nasty taint of familiarity for Europeans of a certain age, the ECB chief among them. Draghi grew up with a ringside seat to the chaos of postwar Europe. The son of a commercial banker, Draghi says “there was an economic ingredient in all of the discussions we were having [at home].” After his parents died while he was still a teenager, inflation shrank his inheritance.
Like Europe, Draghi recovered from that low point. Luca Cordero di Montezemolo, now chairman of sports-car maker Ferrari, remembers his then classmate at Rome’s Istituto Massimiliano Massimo, a Jesuit school, as “very calm, very well dressed, always polite — his hair was always perfect.” Having already acquired the demeanor of a central banker, Draghi set about polishing the credentials that put him in good stead to be one, completing his doctoral studies in economics at the Massachusetts Institute of Technology in the 1970s, around the same time Fed chairman Ben Bernanke was also studying there. “The U.S. was a much bigger and exciting place to be at that time [than Europe],” says Draghi.
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He would later return to the U.S. as an executive director at the World Bank. He has an “international mentality” uncommon among his compatriots, according to Montezemolo, who adds, “The main problem today with the leading class in Italy is that there are few people who can be comfortable if they go to Washington, to Brussels, to Beijing, to São Paulo.”
That international mentality has done nothing to mitigate Draghi’s devotion to the single currency, which he helped forge, first as director general of the Italian Treasury — where he led the Italian delegation to the 1991 conference that produced the Maastricht Treaty, in turn laying the groundwork for the formation of the euro — and from 2006 to 2011 as governor of the Bank of Italy. When the euro teetered at the edge of the abyss, there may never have been any real likelihood of Draghi’s allowing himself to be confined by historical interpretations of the ECB remit to standing back and letting events take their course. “One needs to be at peace with one’s conscience,” he says. “If you are convinced something ought to be done, it must be done.”
With the same calm certitude, Draghi is now pushing for a more durable solution to Europe’s problems. Despite the limitations of his job, and unlikely though it may seem that our banker-bashing era should find in a top banker an avatar of credibility, Draghi appears to be in a better position than most national leaders to communicate — and be believed. And he leads a bank that operates independently and has the ability to print money. It is “the only properly functioning common European institution,” according to Johannes Müller, chief economist at DWS Investments in Frankfurt.
Situations Vacant One problem with democracy is that it often rewards good, honest politics with bad election results. Even as euro-zone leaders inch toward integration, they risk being turfed out of office. Italian Prime Minister Mario Monti, installed rather than elected in 2011 and thus free from the pressures of party politics, managed to stabilize his country’s shaky economy; he now trails the front runners in national elections scheduled to take place next month. Merkel, in contrast to many of her euro-zone counterparts riding high in opinion polls, seems likely to be re-elected when Germany votes later this year, but her business-friendly coalition partners face being tipped out of government. Political turbulence across the euro zone threatens new market turbulence, which could force Draghi to intervene again and again. Yet that’s all he can do. “[Draghi] needs to continue to stress that while the ECB can buy time for the euro zone, the institution cannot by itself deliver a sustainable solution,” says Mohamed El-Erian, CEO of fund-management giant PIMCO. “ECB intervention is a bridge, not a destination.”
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Some critics believe Draghi still could and should do more, for example, by buying government bonds in large quantities to bring down borrowing costs. The ECB “has to do everything to stabilize the markets,” says Peter Bofinger, a member of the German government’s Council of Economic Experts. “Most politicians have reached the limits of their room to maneuver. The only actor who can do something is the ECB. There is nobody left.”
Others complain that Draghi has already done too much. They say that by easing the pressure imposed on politicians by unsettled markets, Draghi has allowed them to backslide. Jens Weidmann, the Bundesbank’s president and representative on the ECB’s governing board, objected vociferously after Draghi’s “whatever it takes” pledge, telling the German newsmagazine Der Spiegel, “We should not underestimate the risk of central-bank financing becoming addictive like a drug.”
Draghi has nimbly outmaneuvered Weidmann. When the ECB council debated the scheme, the German’s was the sole dissenting vote. Draghi is skillful at building consensus and isolating opponents. In the words of a former official in the French government who collaborated closely with Draghi, he “works around opposition rather than confronting through collision.”
These skills and the passionate Europeanism that Draghi’s cool manner belies have catapulted him to a position of unexpected visibility. “Politicians appreciate recognition. I do not,” he says. “But it comes with the job, especially at this point in time, when the job becomes so crucial.” His powers are expanding too. In December, euro-zone countries agreed to form a common regulatory system for major banks — to be managed by the ECB. Integration, says Draghi, “is moving forward after many years when there was basically no progress at all.” Optimism is easier to believe when it comes from a man who has done so much to justify it; you could call it positive contagion. But until Europe’s politicians step up, not even Super Mario can guarantee a safe landing for the euro.
— with reporting by Bruce Crumley / Paris And Stephan Faris / Rome
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