"One needs to be at peace with one's conscience. If you are convinced something ought to be done, it must be done."
There is one reality for bankers, another for the rest of us. That is the lesson most easily drawn from the Jan. 10 press conference of the European Central Bank (ECB). Just hours earlier, Greece had released its latest labor statistics: a steep overall jobless rate of 26.8% masking even worse news for young Greeks, with over half of them — an astonishing 56.6% — out of work. The human toll of the country’s struggle to avoid a ragged departure from the European single currency could scarcely be starker. In 2012 the 17-nation euro zone lost more than 2 million jobs as it grappled with its fierce debt crisis.
Yet the mood at the ECB, and especially of its president Mario Draghi, appeared chipper, at least by the sobersided standards of the institution and the office holder. “We spoke a lot about contagion when things go poorly, but I believe there is a positive contagion when things go well,” he said. “And I think that’s also what is in play now. There is a positive contagion.”
Superimpose Draghi’s optimistic picture on the harsh experiences of Greece and Spain, where unemployment is also hovering around 25%, and you get something akin to a drawing by Dutch graphic artist M.C. Escher: a mind-bending construct with stairs that lead nowhere and architecture ignoring the laws of physics and common sense. That is a pretty accurate portrait of the euro zone and the wider E.U. How you see it depends on your viewing angle, but from no perspective does it make complete sense. Small wonder that increasing numbers of people, especially in debt-blighted European countries, are coming to believe the only solution is to raze the crazy structures and start afresh.
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But that won’t happen if Draghi has anything to do with it. Last year the 65-year-old Italian economist found himself — to the slow-dawning appreciation of governments and bankers from Beijing to Washington — the most prominent and powerful defender of European integration. “Super Mario” saved the euro, literally, at least in the short term. His heroics won him plaudits, but his fellow delegates among the world’s financial elite, gathering from Jan. 22 at the World Economic Forum in Davos, Switzerland, will clamor to know how he believes the currency can overcome the huge existential challenges it still faces.
To understand how pivotal this question is — and by no means just in Europe — it’s worth remembering the size of the euro zone, often overlooked amid excitement at the bulging muscle of China and India and concern over the health of world’s biggest economy, the U.S. The 17 members of the single currency make up the planet’s second largest economy, with a combined annual economic output of $12 trillion. The global recovery, weak and patchy, cannot progress if the euro zone falters and fails. If just one member were to plummet out of the system, markets would exact retribution on people and institutions in distant countries that until that moment had no idea their fates were linked to a continent that has sparked more global conflagrations than any other.
“The European project is a project of peace. Let’s not forget that at the beginning that was the main purpose that our founding fathers had,” says Draghi. His 35th-floor office in the ECB headquarters looks out over Frankfurt, a city nearly destroyed by European conflict and now resurgent as the euro zone’s financial hub. Europe’s is a history of wars, hot and cold, and those experiences inspired the European project toward union and integration. Draghi, born just two years after World War II into a fractured country that had been on the losing side, like many Europeans instinctively grasps that the hardships caused by rocketing unemployment and rampant inflation can imperil even deep-rooted democracies. Sure enough, in Greece, the cradle of democracy — albeit one at times rocked by invaders and in 1967 hijacked by its own military — the despair and rage of its jobless are speeding the rise of the populist far right. Ironically, the phenomenon is stoked by the very budget-cutting reforms demanded by the ECB and the country’s other creditors. As Draghi helps spearhead Europe’s struggle to quell the debt crisis, there are troubling issues to address about the failures of politics that have left so many voters alienated and a central banker wielding a greater global influence than most elected leaders.
Last year, when those failures came close to ripping apart the euro, Draghi stepped into the breach. Just 20 words from him were enough to simultaneously shock and soothe the markets threatening the currency’s destruction. “The ECB is ready to do whatever it takes to preserve the euro,” he told delegates at a London investors’ conference. “And believe me, it will be enough.”
His dramatic intervention, on July 26, bought time, but that commodity is again running low. Even Germany, the euro zone’s biggest and most robust economy, is sputtering, with growth of only 0.7% in 2012. Draghi’s influence, and all the tools of the ECB, may not be enough to steer Europe’s single currency out of danger if politicians squander the temporary stay of execution he has given them.
Words Are Cheap He describes himself as European first, Italian second, but alarms sounded in Germany in November 2011 when Draghi succeeded the cautious, conservative Frenchman Jean-Claude Trichet as the ECB’s top dog. The ECB’s governing council includes representatives from each central bank of the euro-zone nations. Successive Bundesbank governors, haunted by the specter of hyperinflation that sank the Weimar Republic, have remained wedded to a narrow interpretation of the ECB’s remit, to ensure price stability in Europe. Their angst finds echoes among German taxpayers, resentful that they are being asked to fund what they see as the profligacies of southern Europeans. “Mamma mia!” the German daily tabloid Bild protested when Draghi emerged as a front runner for the ECB job. “With Italians, inflation is a part of life, just like tomato sauce goes with pasta.”
