LONDON – Once upon a time, central bankers were grey figures, hardly impinging on the public’s consciousness. Then came the collapse of Lehman Brothers, the onset of the global financial crisis and suddenly these grey figures became the loan officers to entire nations. They haven’t had time to get the media training necessary for their new celebrity.Italy’s Mario Draghi fits the paradigm. Sober, grey, and intensely private, in a few weeks time he will become head of the European Central Bank, the bank that oversees the euro.
It’s not an easy job even in good times, and these are the opposite. In his in-tray: the continued bail-out of Greece; keeping inflation and its evil shadow deflation out of the financially wounded euro zone; overseeing the solvency of the euro zone’s retail banks and financial markets. That’s the short term. Over the rest of his eight year term of office he will probably have to maintain that stability as Europe’s leaders deal with either:
A) Fiscal union of the 17 euro zone nations, with its implied closer political ties; or
B) The break-up of the euro, and its potential destruction of the global economy.
“This is the most critical time for the global economy in the last 70 years in terms of volatility, financial and political,” says Adrian Pabst, a specialist in Europe’s political economy at the University of Kent. “He will need incredible resolve, incredible wisdom and a little bit of luck.”
In an unoptimistic time, people are generally positive about the 63-year old Italian. With good reason. If you were designing a perfect central banker Draghi would be the one. His CV ticks all the boxes:
- Attend a venerable university in your home country: check.
- Polish up your academic credential in Cambridge, Massachusetts: check and check. (He has a doctorate from MIT and spent time as a fellow at Harvard’s Kennedy School of Government).
- Work for Goldman Sachs: check.
- Time at the World Bank: check (executive director during the 1980’s).
- Trustee of elite global institutions: check times 2. (He is a trustee of the Institute for Advanced Study in Princeton and an honorary trustee of the Brookings Institute).
- Currently holds a senior position: check. He is head of Italy’s central bank.
There is no more qualified person in Europe to run the central bank, but that is not the reason why Draghi got the job. In the worst traditions of EU decision making, until earlier this year it was assumed a German would be the next head of the ECB, because it was Germany’s turn.
Since the ECB was set up in the late 1990’s the job has been held by a Dutchman and a Frenchman. The head of Germany’s Bundesbank, Axel Weber was supposed to get the gig but Weber resigned earlier this year and effectively removed himself from consideration. Draghi was a unanimous choice for the post.
Not all in Germany are happy about an Italian taking over. Adrian Pabst, who is German, noted in the Guardian that the tabloid Bild, Germany’s largest selling daily newspaper, recently ran a headline saying that “inflation and Italians” go together “like tomato sauce and spaghetti.”
Silvia Francecon, of the European Council on Foreign Relations’ Rome office, understands why such sentiment is around. “The image of Italy nowadays is not a good one,” she says. “But when Italians are good, really good, they are superstars. Draghi is one.”
Francecon says Germans — or the French or any one else — need not fear an Italian in charge of their central bank. “He will be objective. He will not be an Italian who is in charge of the Central Bank, he will be a European. He will work to save Europe and that means he will work to save Italy because this isn’t Greece. If Italy fails, Europe fails.”
Draghi is a person of discipline. He is committed to keeping his private life private. There are no bunga-bunga parties in his past. Francecon says little is known about him. “He subscribes to orthodoxy on austerity measures and structural reforms.” His published writing is technical but this recent article gives a sense of how he thinks.
For relaxation Francecon says, “Draghi likes to go mountain climbing.” The hobby has taught him control. “He is calm and capable in difficult situations.”
Being up a rock face in the Dolomites, trying to drive a screw into the mountain to run a rope through certainly takes focus, patience, calm nerves and toughness.
He is admired for being a tough customer. The ECFR’s Fancecon says he is one of the few people in Italian public life to speak the truth to his compatriots. “He has told Italians, We cannot rely on others to save us, we have to save ourselves.”
Draghi was one of the main architects of the Basel III banking rules. These rules enacted a year ago force big banks to hold more capital in reserve. They also set up regulations for risk management.
Not every banker is happy about the risk regulations. Last month, Jamie Dimon, head of JP Morgan, told the Financial Times, “I’m very close to thinking the U.S. shouldn’t be in Basel anymore. I would not have agreed to rules that are blatantly anti-American.”
In Pabst’s view, “Draghi, as the architect of Basel III, can say to bankers: ‘Look I know how this works and it is in your self interest to go along. If you take big risks this time no one will bail you out and you will go out of business.”
Europe’s debt crisis is a global problem, exacerbated by the uncertainty that surrounds the political part of fixing it. Draghi in charge of the ECB will add a degree of stability to this time.
Europe’s politicians, who have to face the electorate, may press him to follow monetary policies that might buy them a bit of popular support. Draghi doesn’t have to face the electorate, and the odds are he will still be running the ECB long after today’s crop of leaders have been retired at the ballot box.
This will likely be his last job, the one he has spent his life preparing for. Adrian Pabst is certain that Draghi is aware that these next eight years will mark him for posterity. “I don’t think he wants to go down in history as overseeing the melt down of the euro zone.”
On that point, it’s not just Draghi who is worried about historical reputation. A factor people outside of Europe should keep in mind when they are tempted to get panicked about the political chaos that emanates from the continent in these stormy times. For all of their foot-dragging, none of the leaders in Europe want to be remembered as the ones who oversaw the collapse of the euro. This should concentrate their minds as the crisis enters crunch time.
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