07 September 2012

Telegraph: ECB's powers grow but can it really save the eurozone?

Draghi's expanding battery of weapons for combating the euro crisis is to be strengthened immensely on Wednesday when the European Commission unveils new draft legislation putting the ECB in charge of supervising the eurozone's 6,000 banks, with the power to grant and withdraw licences.

Within a month of taking office last November, Draghi delivered a coup, launching a trillion-euro programme of cheap loans for Europe's banks. Last Thursday he went much further, announcing a new policy of limitless purchasing of eurozone government bonds known as OMT — outright monetary transactions.

The markets went quiet, Spain, Italy and Ireland rejoiced, as Draghi emphasised for the third time in six weeks that the euro is irreversible. He framed his bold intervention as solidly within his remit to defend the embattled currency. But German monetary purists erupted in howls of protest, although it was the German on the ECB's six-strong executive, Jörg Asmussen, who played a key role in drafting the new policy. "Only a currency whose existence is out of the question can be stable", Asmussen told the Guardian in an interview. "What for us is clearly within our mandate is to guarantee the stability of the euro."

Extreme times generate extreme moves. There is no doubt that the eurozone's exhausted political leaders are quietly relieved that Draghi is taking some of the heat out of the crisis. While Merkel, the central actor in the euro drama, could never say so publicly, her aides have been known to concede that Draghi is the only person who can rescue the euro – so let him get on with it.

But the sweeping new banking supervisory powers, the bond market intervention, and the increasing influence the ECB wields over the fiscal and budgetary policies of the governments of the eurozone have many worried that the ECB president and the 22 others on the governing council — the 17 central bank chiefs of the eurozone plus the six-strong ECB executive, all men in suits, not a woman among them — are getting too big for their boots.

"The ECB is getting very powerful", said Jean Pisani-Ferry, director of the Bruegel thinktank in Brussels. "It has emerged from the crisis as a strong institution. It deserves more powers, though this is a major challenge."

Draghi's predecessor, Jean-Claude Trichet, played a key role behind the scenes in unseating Silvio Berlusconi as prime minister of Italy last year. Trichet's letters to the Irish government, some of them recently published by the Irish Times, show how he pressured Dublin into its eurozone bailout, arguing that the dire condition of the Irish banks was imperilling the entire European banking system.

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