Mario Draghi’s successor will have big shoes to fillby Vicky Pryce / May 31, 2019 / Leave a comment
The aftermath of the European elections, which coincided in many countries with local/regional/general elections, has been bloody. The Brexit problem if anything became more insoluble; the Austrian government has fallen; Belgian politics is paralysed; and Greece has announced a snap general election after poor results for the ruling Syriza Party.
But none of that has prevented the political bargaining for the top positions on the continent getting underway. There will soon be a new president of the council to replace Donald Tusk, a new president of the commission to replace Jean-Claude Juncker, and there will also be a new head of the European Central Bank to replace Mario Draghi.
The last one matters hugely (though the other competitions may make more headlines.) Why is that? Of all central banks the ECB seems to have one of the highest degrees of operational independence. And the head of the ECB, though still answerable to their executive council made up of heads of the individual countries’ central banks, is significant—with the ability to shape policy more than people perhaps realise.
It can all go wrong if the head is incapable of understanding the underlying economic realities. Yes, the ECB has some excellent economists whose influence may have recently been strengthened now that Philip Lane, previously governor of the Bank of Ireland, has been appointed to chief economist, replacing the excellent Peter Praet.
And yet see what a difference the Italian economist Draghi has made in comparison to his predecessor, the Frenchman Jean-Claude Trichet. At the early stages of the global financial crisis Trichet resisted repeated requests by Nicolas Sarkozy, the then president of France, to effectively print more money to help the likes of Greece and other countries in difficulty. Painful, crippling bailouts followed as a result, along with more fiscal contraction than would otherwise have been the case.
Trichet later raised interest rates twice in 2011, concerned about inflation, when in fact the eurozone was already sinking back into recession. This was most certainly instrumental in leading to periods of deflation and delayed the recovery, with GDP per head in countries such as Greece and Italy still not back to their pre-crisis levels—in some cases by a big margin.
Trichet’s replacement by Draghi led to a considerable change in policy.…