October 22, 2011
Mario Draghi, the Italian who succeeds Jean-Claude Trichet as president of the European Central Bank on November 1st, will be a top dog among central bankers. But his new job will be hellishly hard.
Mr Draghi will take charge just as Europe’s politicians unveil yet another “comprehensive plan” to solve the debt crisis: one that is almost certain to disappoint investors’ inflated expectations. It will then fall to Mr Draghi to prevent the euro mess from spiralling downwards again. That will require bold, and controversial, actions very soon. He will need to promise that the ECB will continue to back embattled but solvent governments by buying their bonds; support a big debt reduction for Greece; and cut short-term interest rates. Usually it makes sense for a new central banker to err towards caution, but the single currency’s future will hinge on whether Mr Draghi is brave enough to be radical.
The politicians’ rescue plan is to be hashed out at a meeting of the zone’s leaders on October 23rd, and unveiled by the G20 summit in Cannes on November 3rd-4th. Finally, it seems to have the right goals: recapitalise Europe’s banks; create a firewall to protect embattled, but solvent, countries such as Italy; find a decisive solution to Greece’s debt woes; and improve the zone’s capacity to rein in errant governments. But it will, at best, be a work in progress: short on technical details and with new proposals—such as tapping the European Financial Stability Facility (EFSF) to provide partial guarantees for sovereign bond issues—closer to the drawing board than the launch pad.
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