Mario Draghi: the closest thing the Eurozone has to a leader?

Mario Draghi: the closest thing the Eurozone has to a leader?

Who leads the Eurozone? Having “saved” the euro last year, I think that title belongs to Mario Draghi, head of the ECB. This article looks at why that is, and why it’s less than ideal.

One of the things for which Henry Kissinger is famous for asking is, “Who do I call, if I want to talk to Europe?”

Well, the European Commission may have a President, in the form of José Manuel Barroso, but I doubt that anyone thinks he’s where the power in Europe lies. He’s closer to a glorified bureaucrat.

Meanwhile, others might say that Angela Merkel is where power truly lives on the continent. Germany is after all Europe’s biggest economy, and Dr. Merkel has a defining influence in shaping the Eurozone.

Yet, I don’t think we would say that Merkel “speaks” for all Europe. She may influence the Eurozone more than anyone else, but she doesn’t “embody” as such.

Instead, I think if I were to pick out one person as a Eurozone-wide “embodiment”, it would be the President of the European Central Bank, Mario Draghi.

We need only look at what he’s accomplished in the last year to prove this.

Go back in time six months, and the Eurozone was on the verge of break up. Greece’s exit from the currency zone looked inevitable. The spreads on Spanish and Italian government bonds were at unacceptable levels of +7.0%. Capital flight from the Eurozone periphery was advancing at breakneck speed.

And, in these dire circumstances, who was it that came along and restored confidence? Well, it wasn’t Angela Merkel, who’s handcuffed by the opinion of German voters. Nor was it José Manuel Barroso, to be sure.

Instead, it was Draghi, who on the 26th July 2012, at the Global Investment Confidence in London, told his audience: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

That led the way for Draghi to reveal his Official Monetary Transactions program, which has been almost wholly responsible for restoring confidence in the Eurozone to date.

For me at least then, something a little unusual happened on that July 26th.

Until then, Mario Draghi had only been responsible for setting monetary policy in the Eurozone. He set interest rates, which had a defining influence both on the cost to borrow in the currency union, as well as the euro exchange rate.

That’s real power, to be sure. But, it’s not what you’d call “leader-like” power. It wasn’t enough that you’d single Draghi out as somehow “embodying” the Eurozone, like a President embodifies a country.

Yet, on July 26th, he seemed to take on exactly that role. He’s after all become known as the man who “saved” the euro (and, by logical extension, the Eurozone.) The Financial Times named Draghi its Man of The Year for just this reason.

And, in saving the euro, I think we now see Draghi as somehow responsible for it, in a way that no one else is.

We can see this in the questions journalists now pose of him. At a press conference yesterday, the 10th January 2013, in which Draghi announced the ECB will hold interest rates at 0.75%, the questions he received were as much about the recession in Europe as monetary policy.

Was he not aware there’s an employment crisis in the currency union? one journalist asked him. Well, of course, Draghi replied, but it’s really outside the scope of the central bank to deal with that. It is, he said, the responsibility of national governments.

Yet the very fact that Draghi was posed this question, and others like it, shows that, having “saved” the euro, people now see him as responsible for things that lie far outside his remit as a central banker. If the euro is “his”, why shouldn’t he solve its other problems? seems to be the implication.

You could argue this points to a power vacuum at the heart of the Eurozone. If Angela Merkel, as the head of the currency union’s biggest economy, can’t lead it, then who can? By singling out Draghi, people seem to “expect” the Eurozone to have a leader, and have chosen him as the next best thing.

Of course, insofar as Draghi is a central banker, this is deeply undemocratic. And insofar as his remit lies solely with monetary policy, he’s obviously unable to deal with the myriad of problems in the Eurozone, not least the unemployment crisis.

Yet, so long as the Eurozone remains this half-formed thing, it’s easy to see the situation enduring. Officially, Draghi will continue to set interest rates, which will influence both the cost of borrowing and the value of the euro, as always.

Yet, whether he likes it not, people will now expect Draghi to “save” the Eurozone, exactly because he’s done so in the past.

Who do you think is the real leader in the Eurozone? Is it Draghi? And if so, what do you think about this situation? Let us know your thoughts in the comments.