What would happen to Europe’s prospects for recovery if Mario Draghi left his job as president of the European Central Bank? Would Draghi’s plans to implement an ambitious policy of monetary stimulus get bulldozed by German inflation hawks and others favoring continued austerity across the Continent?
Even a week ago there seemed little reason to ask such questions. Not anymore. Draghi appears set to leave Frankfurt and return to his native Italy the first chance he gets.
This could be as soon as January, depending on a variety of circumstances in Frankfurt and Rome, according to well-placed sources who include a prominent private investor and a senior journalist in Rome. “Draghi wants out, fed up and stymied by Berlin,” one of these sources wrote in a note just before the weekend. In a subsequent message: “I am hearing from several [official] sources that he is entirely fed up with the monetary politics he confronts.”
Draghi, indeed, has been in an intensifying battle with the austerian camp for months. Notable among his adversaries is the hyper-hawkish Jens Weidman, president of the Bundesbank, who seems never to miss a chance to strike via public comment against Draghi’s proposal to extend the ECB’s asset-purchasing program, launched earlier this year, to include government bonds as well as asset-backed securities.
Whether Draghi remains the European Union’s central banker now appears to depend on the political future of a man widely noted for his ambition. “The issue now is to engineer Draghi’s transition to the post of president in Italy,” as one of my sources tells me—and as all of them agree. “He would leave the ECB only if they [Draghi’s supporters] can get the transition from Frankfurt to Rome in place.”
Questions arise instantly.
Why would “Mr. Whatever It Takes,” who has proven a determined and effective builder of consensus in favor of a Keynesian recovery strategy, walk off the field before the game’s over?
It is indeed a little surprising that Draghi wants to step down now. While his war with German-led austerians has been a slog, Draghi has gradually shifted opinion in his direction. As noted in this space last week, a victory on the question of government-bond purchases now appears in the offing.
Italian sources, moreover, dismiss the thought that Draghi is succumbing to the Bundesbank’s relentless resistance in what amounts to a war of attrition. “Fatigue doesn’t explain this,” the editor in Rome says. “There are a lot of people in Germany who’d be happy if Draghi were no longer in Frankfurt, but I don’t think it’s a question of being tired.”
Some observers in Italy reckon that Draghi thinks he has done all he can at the ECB. But it’s some and some on this point.
“There are others here who say Italy now needs a president who can reassure Europe as to the direction of Italian reform policies,” my journalist colleague in Rome tells me. “Draghi rates high in this respect.”
Why would Draghi cash in a position of considerable international influence to take up the figurehead presidency of a mid-sized European power?
Again, no simple answers. Contrary to appearances, Draghi may have concluded recently that he won’t prevail against his austerian adversaries, some sources suggest. It is more likely that, as everyone has already concluded, he recognizes that there are no promising alternatives to succeed Giorgio Napolitano, who is expected to step down as president early next year. “Draghi’s a last resort for Italian politicians,” in the estimation of one informed source.
For his part, Draghi denies that he has any presidential ambitions—or any plans to pack up in Frankfurt, for that matter. But my sources advise that we assign these assertions zero credibility. Draghi went home in mid-November to deliver a speech on ECB policy to students at the University of Rome, and the occasion was widely taken to be a toe in the water prior to a full-dress presidential candidacy.
What are the chances Draghi will find the post-ECB berth he wants in Italy?
More complications. Reflecting discontent over cutbacks in funding for Italian universities and public services, the university speech bombed, provoking street protests, arrests, and a smattering of violence. While the president is elected by deputies in the two legislative chambers and heads of Italy’s regional governments, that scene was damaging.
“He has to be ‘sellable’ in a broader sense to the Italian public, so the address to the University of Roma was not a plus,” a source writes in a note. “He gave a political speech, and the students gave him, shall we say, a political reception.”
Another factor evident here is Prime Minister Matteo Renzi. One, sources say he appears to think he can make more use of Draghi in Frankfurt than at home. Two, there are indications he doesn’t want a figure of Draghi’s weight and international stature crowding into his picture frame.
The weakness of other candidates—Romano Prodi, a former prime minister, and Giuliano Amato, a former interior minister and now a member of the constitutional court—again comes into play. Even with the failed speech and Renzi’s probable resistance in view, a source in Rome concludes, “If Draghi opens the door it won’t be difficult to reach the needed consensus. He’ll get it if he wants it.”
Does, he, truly?
It appears he does, although nobody has a map of either Draghi’s heart or mind. In any case, we’ll know more soon. Presidents customarily deliver end-of-year speeches, and Napolitano is expected to say more as to when he’ll step down in the one due shortly.
“The probability now is he’ll leave in the second half of January, in which case the voting will start at the end of January,” the Roman editor says. Watch this space. Draghi’s hat will be in or out in little more than a month.
What if he goes for it? What of ECB policy then?
This is another of Draghi’s considerations, according to a source plugged into the Frankfurt institution. Tired or not, he is hardly likely to walk away from what he has so far achieved, and the indications given this columnist are that ECB policy would be instantly vulnerable to hard-line inflation hawks were he to drop the guard abruptly.
“Making sure that austerity Europe doesn’t grab hold of the ECB presidency,” as this source puts it, could thus have a lot to do with Draghi’s timing—if not, indeed, with the decision itself.
This last is reassuring. Europe needs big, ambitious stimulus measures badly, and for the moment it follows that Europe needs Draghi. “For a lot of us here,” the Italian editor said by telephone the other day, “Draghi is much more useful in Frankfurt than he would be here.”
I second the thought. Mr. Whatever It Takes, you’ve chosen a hell of a time for a career crisis, it must be said. Best for the global economy altogether if you live up to the expression you made famous when the chips were down a couple of years back, please.
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