22 June 2012

Stewart Fleming: Draghi makes his move

The head of the European Central Bank has decided that he must get more involved in the political debate about the eurozone, writes Fleming in his European Voice column. Those who value the ECB and the euro must hope that Draghi's political timing is perfect.

What is striking about his recent interventions is the high public profile that Draghi and the ECB are taking in what is essentially a political debate about the future of Europe. This is not, according to some well-informed observers, without some internal soul searching, for it is stepping well beyond the ECB's strictly interpreted mandate, in particular its primary role of controlling inflation. 

Perhaps the ECB's biggest practical step in this controversial direction was the decision announced at the 23 May summit. Draghi agreed to join a working group, with Herman Van Rompuy, the president of the European Council, José Manuel Barosso, the president of the European Commission, and Jean-Claude Juncker, the prime minister of Luxembourg who chairs meetings of eurozone finance ministers. The summit tasked Europe's new “four musketeers” with preparing a report on the “longer term vision of our economic and monetary union”. 

Monetary policy, both the manipulation of interest rates and of the other monetary policy tools, now has to combat recession, the threat of a disorderly eurozone break-up and ensuing global depression. This puts unelected central bankers at the heart of the political process. 

What the ECB has decided to do, however, and Draghi could hardly act in this way without at least the tacit acquiescence of his governing council, is to take on, very publicly, the role of a leading, public political actor, alongside Europe's heads of government and their top-level appointees: Van Rompuy, Barroso and Juncker. 

Even if the eurozone is able to muddle through the ensuing months, this would damage the reputations of the four authors and of their institutions. Crucially, the ECB would be wounded, its credibility eroded, its cohesion threatened. This at a time when it is the one eurozone institution that has consistently demonstrated a capacity for decisive and speedy intervention to contain the crisis, the critical Long-Term Refinancing Operations (LTROs) begun in December being the most recent example. 

Draghi, and his central banking peers, will be well aware of the risks they are running. They have, in effect, decided that now is the moment to ratchet up even further the pressure on governments of the eurozone Member States to take the painful steps to surrender and pool national sovereignty, without which the euro is almost certainly now doomed. 

Those who value the ECB and the euro must hope that Draghi's political timing is perfect. 

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