Draghi and the ECB Germany Has Doubts about Super Mario
Bank of Italy governor Mario Draghi is seen as the most likely candidate to become the next ECB president after Paris backed him last week. But Chancellor Angela Merkel wants to secure concessions for her consent, and some in her party have doubts about putting an Italian in charge of the euro.
Mario Draghi has a trait that comes in handy even when he's not pursuing his hobby of mountain climbing in the Dolomites. The head of the Italian central bank "remains calm in all circumstances," says a longg-time acquaintance. In the future, Draghi will need that ability more than ever.
Jean-Claude Trichet will retire as president of the European Central Bank in October -- and French President Nicolas Sarkozy has officially named Draghi as his preferred choice of successor. In doing so, Sarkozy has put Chancellor Angela Merkel under pressure.
The presidency of the ECB is one of the most senior jobs in the euro zone. The ECB president is the guardian of the euro and -- of particularly import to the Germans -- must safeguard the stability of the currency, especially in times of turmoil.
That is why at the height of the euro crisis last year, Merkel tried to secure the job for a German. The chancellor was determined to install Axel Weber, then president of the German central bank, the Bundesbank, as ECB chief.
But Weber announced his resignation as Bundesbank president in February following a dispute over the ECB's emergency program of purchasing government debt issued by ailing euro member states. Since then, Germany hasn't had a candidate for the job.
German Finance Minister Wolfgang Schäuble has already accepted Draghi. There is no one more qualified, say sources in his ministry. But members of Merkel's ruling coalition of conservative Christian Democrats (CDU) and pro-business Free Democrats are reluctant about having an official from a highly-indebted nation like Italy in charge of the euro.
"Draghi isn't a bad candidate," says Klaus-Peter Willsch, a CDU lawmaker who specializes in budget affairs. But his nomination as ECB president would send a "disastrous" signal, he added.
Monetary policy experts and ECB officials, though, are convinced that Draghi is the right man for the job. The Italian is regarded as cosmopolitan and has an impressive resume. He was an executive director at the World Bank in Washington before working as an investment banker at Goldman Sachs in London. He currently runs the Financial Stability Board of the G-20, which is preparing new rules for financial markets.
As state secretary in the Italian Finance Ministry, Draghi helped to save his own country from bankruptcy in the 1990s, and enabled it to qualify for membership of the euro. He has also won praise for his performance as governor of the Bank of Italy.
In financial circles, the introverted 63-year-old is hailed as "Super Mario." US government official praised his down-to-earth manner, according to secret diplomatic cables released by WikiLeaks late last year.
In recent months, Draghi has been repeating a mantra that budgetary discipline by member states and monetary stability are priorities for him.
But German lawmakers have criticized Draghi's spell at Goldman Sachs -- especially because his former employer forged a controversial derivatives deal with Greece that enabled the country to understate its government debt. The deal, though, was arranged in 2001, well before Draghi joined Goldman. Furthermore, Draghi dealt with corporate clients once he started at Goldman and wasn't involved in government deals.
Nevertheless, the issue is proving a drag on his candidacy, partly because Italy itself engaged in so-called swap deals to manage its debt while he was a senior official in the Italian Finance Ministry. The European Commission has defended the practice in Italy, saying the deals were legal and made sense. But such risky derivatives trades have carried a stigma since the financial crisis.
Merkel Wants Consolation Prize
But there is a different reason why Merkel is hesitating with her approval. She wants to negotiate a consolation prize. One such concession could be that Jörg Asmussen, a state secretary in the German Finance Ministry, would get the chairmanship of the important European Economic and Financial Committee, which prepares Ecofin and Eurogroup meetings.
In addition, the new president of the Bundesbank, Jens Weidmann, could succeed Draghi as chairman of the Financial Stability Board.
Even more important for Merkel are concessions regarding the permanent rescue fund for the euro, the European Stability Mechanism, which is due to be launched in 2013. Even though government leaders agreed on a permanent system at a summit in March, many points remain in dispute. Germany wants the details to be finalized by June. Countries such as Italy are pushing for non-binding provisions on some major issues such as what kind of majority the ESM will need for its decisions and whether the fund will be able to create new aid instruments itself.
Another issue that had appeared to be resolved is now back on the table -- the involvement of private sector creditors in future bailouts. Government leaders agreed that it should be possible in extreme cases. But some member states are opposed to that -- including Italy.