EMemories of Mario Draghi’s legendary appearance almost exactly ten years ago were awakened when the European Central Bank reported on a meeting of its central bank council that had been convened at short notice on Wednesday. As in the first euro crisis, bond yields in peripheral countries had previously risen sharply. And just as Hans-Werner Sinn, as then President of the Ifo Institute, gave the Cassandra in the first euro crisis, his successor Clemens Fuest was quoted on Wednesday with a gloomy prognosis: “What is happening here is clear: That is it Return of the euro crisis.”
Is it that time again? That doesn’t seem safe. It is true that the thinking of the European Central Bank is still strongly influenced by Draghi’s term in office. And so Christine Lagarde is preparing to try to prevent the outbreak of a new euro crisis with similar means to those with which Draghi contained the first euro crisis from autumn 2012.
Lagarde’s problem is the dramatic change in the environment. When Draghi put the stabilization of the eurozone at the heart of the European Central Bank’s actions, inflation did not play a significant role. Forecasts, not least from Germany, that the expansive policy in the wake of the great financial crisis of 2008/2009 would lead to high inflation had turned out to be wrong.
“And believe me, it will be enough”
Today, on the other hand, an inflation rate of around 8 percent obliges an ECB, which is committed to its mandate, to focus its actions solely on restoring monetary stability. Attempts to stabilize the currency union with methods à la Draghi could, in the worst case, even thwart the securing of price level stability. Nevertheless, the ECB is finding it difficult to courageously step out of the shadow of its most powerful president to date, which still weighs over it.
So it’s worth looking back. When Mario Draghi took part in a panel discussion on July 26, 2012 at Lancaster House in London as part of a high-calibre conference, heavy clouds hung over the eurozone. The distrust of many investors regarding the creditworthiness of highly indebted euro member countries raised serious doubts about the future viability of the European Monetary Union. Strongly rising yields on southern European government bonds reflected fears that the monetary union would collapse. All attempts by governments to restore confidence in the euro had failed.
When Draghi took the floor for a short contribution at the conference in London, he initially had little to offer his audience. Then, practically seamlessly, the legendary words, which were by no means improvised but had been prepared for weeks, fell after around seven minutes. You have long since gone down in financial history: “I would like to convey one more message to you today. Within our mandate, within our mandate, the ECB is ready to do whatever is necessary to preserve the euro.” After a brief artistic pause, Draghi continued: “And believe me, it will be enough.” Among those present, won not only Christine Lagarde, who at the time attended the conference as Managing Director of the International Monetary Fund, spontaneously got the impression that Draghi’s sentences could have a lasting impact on the future of monetary union.
