One man, one speech, one goal – saving an entire monetary system.
That might sound like megalomania. But it has been reality since July 2012. Even critics acknowledge that with his famous “whatever it takes” speech, the head of the European Central Bank, Mario Draghi, brought about a turning point in the euro crisis and reestablished confidence.
The speech was courageous, it was unexpected and it was effective. That is part of the truth. Two years later, however, the second part of that truth is becoming more and more apparent.
With his promise to do everything to save the euro, Mr. Draghi not only calmed financial markets. He also took on a new role for the central bank that can’t be appealing to those who run it – that of crisis manager. This has transformed the greatest strength of the central bank, its capability as a single institution to act constantly and quickly, into a grievous weakness.
The central bank and its president can’t complain about the ongoing chorus of demands. These are the spirits that they summoned forth.
The European Central Bank sets monetary policy for 18 countries that use the euro and is roughly equivalent to the Federal Reserve in the United States. It derives strength from being able to act without parliamentary decisions. But since being co-opted by politics, its independence is called into question.
Admittedly, this began more than two years before Mr. Draghi’s speech, in May 2010. Back then, politics dictated that the euro zone not lose a single member country and coerced the central bank into an active role. The bank let itself be coerced and purchased government bonds.
But Mr. Draghi’s speech in July 2012 accelerated the trend. This is quite clear today. Whatever the central bank decides, financial market leaders and especially politicians demand more. And the bank finds it difficult or even impossible to say “Stop!”
Because with his speech and the program of buying government securities (Outright Monetary Transactions), Mr. Draghi made a promise that, in case of threats to keeping the euro zone together, the central bank would take action.
At the same time, there is more temptation for crisis countries to not take euro zone budget deficit limits too seriously. They are quite certain that the central bank will arrive as a knight in shining armor.
In June, Mr. Draghi announced an unprecedented package of measures, including a negative interest rate for money that banks hold in the central bank. Then Manuel Valls, prime minister of France, appealed directly to bank officials for even more – an extensive bond-buying program. The initial measures were “admittedly a clear signal,” Mr. Valls said, “but I want a central bank that can go further.”
“I want… I want… I want… .”
Truly the central bank and its boss can’t complain about the ongoing chorus of demands. These are the spirits that they summoned forth.
But they can and must rid themselves of them by not always promising more and more. Only then can everyone assume their proper roles again: Keeping the currency union together is for politics to manage. Monetary politics for a stable euro is the job of the European Central Bank.
Dorit Hess is assistant head of the business and monetary policy department at Handelsblatt. She can be reached at firstname.lastname@example.org.