09 January 2013

Reuters: How Mario Draghi is reshaping Europe's central bank

Until Draghi took over a year ago, the bank had a workaholic, micro-managed regime. But even as the Italian has proved ready to intervene in the markets and try policies that would have been unthinkable a few years ago, he has changed the culture of the bank.

The president knows his own mind,  but also listens to other board members, uses their talents, and then acts, deploying personal charm to help get what he wants. The man himself says he likes to give colleagues responsibility. "I trust the people who are working with me. I delegate", he said. "I told people they should take their own decisions. You want to delegate but you want to be informed."

That culture change, combined with a new team at the top, is reshaping the way the ECB operates. Conversations with senior ECB officials past and present paint a picture of how Draghi is overhauling the bank - not just its policies, but also its management style and the way it interacts with governments - to make it a more pro-active central bank with a mission to secure the euro and foster a tighter-knit currency union.

Draghi inherited an ECB roiled by resignations and a boardroom clean-out. Just two months before Draghi became ECB president in November 2011, German Jürgen Stark said he was quitting as chief economist, depriving the bank of one of its most experienced policymakers. A shake-up of the six-man Executive Board then left Draghi with an almost entirely new team, including two new board members with no previous central banking experience.

His answer to the problem illustrates the mix of radical policies and consensual management style he has brought to the bank.

Does Draghi risk going too far, overstretching an institution struggling to keep up with his activist approach? In the "vision statement" he co-authored with the presidents of the European Commission, the European Council and the Eurogroup of eurozone finance ministers, Draghi angled for the ECB to take on additional responsibility for supervising Europe's banks.

Under a landmark deal last month, the ECB will have new powers from 2014 that will give it automatic oversight of around 150 of the biggest banks in the eurozone, and the authority to intervene in the 6,000-odd smaller banks if there are signs of trouble. Some ECB policymakers are concerned about this new role. They feel that Brussels and European governments are foisting the job on them simply because the ECB has credibility, a hard-won asset they worry could be lost through conflicts of interest.

The ECB does not want the job to conflict with its monetary policy role. One risk is that the ECB could allow information from its supervisory work to influence its interest-rate setting policy, which should be focused on delivering stable prices.

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© Reuters