Person in the news
September 7, 2012 7:16 pm
Super Mario reaches the last level – German politics
©Joe CummingsDisco hits from the 1980s rarely get much of an airing at European Central Bank press conferences. But on Thursday, Mario Draghi, the bank’s president, , managed an allusion to Gloria Gaynor as he outlined his bold gamble to save the euro.
“I am what I am,” the Italian told his Frankfurt audience. He might have added – “and I can change”.
The quip was in response to a German reporter who was confused about Mr Draghi’s use of German-style rhetoric as he announced a very un-German plan: to direct the bank’s unlimited firepower towards buying the bonds of countries such as Spain and Italy in an effort to drive down their borrowing costs.
It was a solution only an arch-pragmatist could come up with. It flies in the face of the doctrine cherished by the Bundesbank that a central bank must do one thing only: keep inflation in check.
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It may still go disastrously wrong and put the ECB in the position of choosing between continuing to buy the bonds of a country that has reneged on the attendant fiscal conditions or pull the plug, triggering panic, default and very possibly an exit from the eurozone.
Mr Draghi, 65, urbane and in an immaculately tailored dark suit, had reasonable arguments about why so-called “outright monetary transactions”, or OMT, are well within the remit of the bank and why strict conditions are required.
But for an illustration of just how pragmatic that makes the US-trained economist, one-time Goldman Sachs banker and long-time technocrat, rewind to his first press conference after taking over from Jean-Claude Trichet in November 2011.
“What makes you think that the ECB becoming the lender of last resort for governments is what is needed to keep the euro area together?” he said then. “No, I do not think that this is really within the remit of the ECB.” Eight months later, in July, he pledged to “do whatever it takes” to save the euro.
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Mr Draghi is acutely aware of the need to keep German opinion on his side. He only secured Europe’s top central banking job after Berlin’s favourite, then-president of the Bundesbank Axel Weber, resigned.
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After carefully nurturing Angela Merkel, German chancellor, and sensing intransigence at the Bundesbank under its new president Jens Weidmann, Mr Draghi has taken the risk of leaving the Bundesbank isolated in opposition to OMT while winning support from the region’s other 16 central banks.
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But if the talk of big sticks to accompany the carrot of unlimited bond-buying was meant to convince Germans that the Italian in control of their printing presses had their backs, it is unclear he has succeeded.
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Die Welt spoke of a “gigantic danger” and the “death” of the Bundesbank. The Frankfurter Allgemeine, paper of record for German conservatism, judged the ECB to have become a “prisoner of politics”. The mass-market Bild Zeitung said Mr Draghi had written a “blank cheque for debtor states”.
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Mr Draghi is unmoved. “I would not identify with this caricature of being [part of] a southern cabal or an Italian thing,” he said on Thursday, pointing out that his plan was backed by 21 of the 22 members, including himself, on the ECB’s powerful rate-setting committee. (No prizes for guessing the one dissenting voice.)
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Mr Draghi was born in Rome to a father who worked at the Bank of Italy and a chemist mother; his parents died when he was a teenager. He was brought up with his younger brother and sister by an aunt, and attended a Jesuit school. He studied at La Sapienza University and became the first Italian to earn a doctorate at the Massachusetts Institute for Technology.
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After a spell in academia and at the World Bank, he embarked on a 10-year stint as director-general of the Italian Treasury. He then went to work for Goldman Sachs as a vice-chairman and managing director for three years before becoming governor of the Bank of Italy in 2006.
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It was during his decade from 1991 at the Italian Treasury that he earned the Super Mario nickname that has stuck with him ever since. As governments came and went in rapid succession, Super Mario, like his computer game namesake, (metaphorically) dashed around, picking up coins, jumping over yawning chasms and fighting ever more tricky end-of-level bosses.
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“We came within an inch of defaulting,” Francesco Giavazzi, an Italian economics professor who worked with Mr Draghi in the Treasury, has said. “He is extremely cool in situations in which normal people are freaking out.”
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With little apparent dogma other than righting the Italian state’s affairs, Mr Draghi oversaw cuts to public spending, tamed inflation and launched an ambitious privatisation programme, at times bringing in foreign banks to help sell off state enterprises. To top it off, he laid the groundwork for Italy to become a founding member of the eurozone.
Another person who worked with him at the Treasury recalls that “the finance minister would change every year or so and he would have to work with them to help them understand what the job was ... He has developed a very good skill of interacting with politicians”.
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Even officials in the Bundesbank, which has in effect suffered a bloody nose at Mr Draghi’s hands, speak warmly of him. He is said to have little interest in detail, preferring the big picture. He will ask to be reminded what a given committee does or what an acronym stands for at ECB meetings.
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As Europe waits to see whether Mr Draghi’s latest gambit will pay off, it is perhaps his pragmatism and political instincts that will stand him in good stead. After announcing OMT, Mr Draghi flew to Potsdam, just outside Berlin, to receive a prize for promoting European understanding from Wolfgang Schäuble, German finance minister.
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“At a time like this, praise is a very scarce commodity,” Mr Draghi said. “So you can understand what this means to me.”
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The writer is the FT’s Frankfurt bureau chief
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Copyright The Financial Times Limited 2012.
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