August 7, 2022

Mario Draghi to Head Europe’s Central Bank

Mr. Draghi, the 63-year-old governor of the Bank of Italy, will succeed Jean-Claude Trichet as Europe’s most powerful central banker, according to a communiqué from the 27 member states at a two-day summit meeting that ended Friday.

The announcement had been delayed because of concern expressed by France over losing a powerful voice when Mr. Trichet, a Frenchman, leaves his post in autumn. France asked that another French citizen be appointed to the central bank’s executive board to bolster France’s influence. To do so, a vacancy had to be created, and because Mr. Draghi is Italian, the obvious candidate to go, in France’s view, was Lorenzo Bini Smaghi, an Italian on the six-member board.

Mr. Bini Smaghi had to be persuaded to leave voluntarily before his term expired in 2013 because board members cannot be fired. But the Italian prime minister, Silvio Berlusconi, had refused to provide one possible incentive: giving Mr. Bini Smaghi the job at the Bank of Italy soon to be vacated by Mr. Draghi.

But after speaking Friday with Herman Van Rompuy of Belgium, who led the summit meeting as president of the European Council, Mr. Bini Smaghi called the French President Nicolas Sarkozy to say that he would step down. That is expected to occur by the end of the year, Mr. Berlusconi said.

Aside from straining relations between France and Italy, the dispute over the executive board had also been seen by some as a test of the independence of the central bank. At one point, Mr. Bini Smaghi had appeared to compare his predicament to that of Thomas More, who was sentenced to death in 1535 in Britain for defying King Henry VIII.

Mr. Draghi has not signaled plans to make any major policy shifts in his new job, which he is to assume on Nov. 1.

On the contrary, Mr. Draghi has kept a low profile since he emerged as the default candidate earlier this year. In an interview in February he stuck to the central bank’s hymn sheet, refusing to talk about himself and emphasizing his credentials as a crusader against inflation.

Monetary policy should “first and foremost be geared toward price stability,” Mr. Draghi said.

Mr. Draghi is already an influential member of the central bank’s broader governing council, and is well known in international policy-making circles as chairman of the Financial Stability Board, a European Union panel that is formulating new banking rules intended to prevent future financial crises. He is expected to retain that post.

He will take over the bank as it navigates the worst crisis since the euro was introduced in 1999. Because the 17-nation euro zone lacks a strong central government, the bank has been forced to act as crisis manager, providing emergency funds to stricken banks, buying government bonds to try to stabilize markets, while often clashing with political leaders on policy.

So far, Mr. Draghi seems to have many of the same qualities as Mr. Trichet, including discretion born of years of government service and an ability to stand up to political pressure.

Once in office he could forge his own path, but it would be a surprise if he made any striking changes. At the Bank of Italy, Mr. Draghi has been known for being cautious and deliberate, to the point where some said he was too slow to make decisions.

Germany had been expected to name the next president of the central bank, but the selection process was thrown open in February after Axel Weber, the president of the Bundesbank, unexpectedly announced he would resign and took himself out of the running.

Unlike Mr. Weber, who now teaches at the University of Chicago, Mr. Draghi has not dissented publicly from other members of the bank’s governing council in responding to the sovereign debt crisis involving Greece. Analysts regard Mr. Draghi as a hard-liner on inflation, though less so than Mr. Weber would have been.

Mr. Draghi, who holds a doctorate in economics from the Massachusetts Institute of Technology, was the consensus choice of economists for the job but had to overcome political resistance because he is from a country that, unlike Germany, is associated with fiscal irresponsibility.

Mr. Draghi also overcame questions from the European Parliament about his stint from 2002 to 2005 as vice chairman and managing director of Goldman Sachs. The American investment bank was the lead manager in a 2001 derivatives transaction that allowed Greece to dress up its books in a way that helped it become one of the countries using the euro.

“I joined Goldman after these operations had been undertaken, and that’s it,” Mr. Draghi said in February. “I was never involved in this.”

Before joining Goldman, Mr. Draghi spent a decade as the top bureaucrat in the Italian treasury, where he was known for deftly navigating the minefield of Italian power politics. He became governor of the Bank of Italy at the end of 2005, and since then has sometimes annoyed Italian leaders by pushing them to do more to make the economy competitive and reduce public debt.

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