I have long held the view that Mario Draghi is the central banker of his generation. Critics would be quick to point out that if he was so great, then the ECB would have acted more quickly and effectively to the euro zone crisis. Instead of waiting until the summer of 2012, something like OMT should have happened much earlier. And rather than the slow rate cuts and silly little liquidity and private paper operations, that large-scale QE should have started as much as a year earlier than it did. I would counter that I doubt if any other ECB President could have delivered any of those momentous policy decisions. Mario has effectively herded the 27 cats on the Committee, including some very (very) opposed to these policies. He may not have got the result as quickly as hoped, but he got there nonetheless through a combination of standing tall in a crisis (“whatever it takes” speech) and bringing others around to his view. He no doubt had the political support necessary (in particular from Angela Merkel), but I think that again was very much down to Mario’s powers of persuasion.
Time will tell how costly the delay will have been in enacting QE, but the early signs are actually pretty positive.
The consummate professional was at his very best in the ECB press conference yesterday. With the immediate worries about Greece off the table, Draghi was able to deliver the strongest presser I can remember. Always one to play to the audience, he even did a little Trichet-like turn, by nonchalantly slipping into the second Q&A answer that ELA for Greek banks had been raised – arguably the most important piece of information to come out of the press conference.
Some other takeaways from the presser:
- Several times Draghi indicated that those who had been calling for the ECB to remove ELA for Greek banks, causing an immediate collapse in the Greek banking system, failed to understand the ECB’s mandate. It is not for them to determine who is or isn’t in the euro zone. They have to work on the assumption that every member remains inside until they are told otherwise. Removing ELA (when its provision was still acceptable in the ECB rules) would have been tantamount to the ECB ejecting Greece from the euro.
- Draghi’s statement that “it’s uncontroversial that debt relief is necessary” is important. While this will ultimately be a political decision, the two key technocratic bodies, the IMF and the ECB, have made very clear their views.
- Draghi made a nice point about the difference between ELA for single institutions and for the entire banking system in a euro zone country. These are very different propositions. The first must remain covert, the second is so obvious to everyone, that making the support public is the safer route.
- Draghi urged national leaders to discuss the Five Presidents report as soon as possible, and use recent events as an opportunity to push forward on competing the union (something I have written about here)
- The ECB will be able to purchase Greek govt bonds as part of QE once the new ESM program starts, so long as the Governing Council deems they are complying with the programme.