Economics & Finance
May Fri 27, 2011
With the resignation of Dominique Strauss-Kahn, the Eurozone this week lost one of its most ardent advocates. This time last year, he was instrumental in persuading a reluctant Angela Merkel to back an unprecedented €110bn (£95bn) bailout of Greece with significant assistance by the IMF, both technical and financial. Unless a European is appointed, the next managing director is likely to scale back the IMF's political and practical support for the Eurozone's rescue mission. Coupled with a return to market fundamentalism, the fund's retreat from Europe's mess would spark contagion from the Eurozone's banking and sovereign debt crisis to the global financial system.
One person who won't succeed Strauss-Kahn is Mario Draghi, the governor of the Bank of Italy. The Eurozone's finance ministers have nominated him as the next president of the European Central Bank (ECB) when the incumbent Jean-Claude Trichet retires in October. The timing of Draghi's nomination for the ECB's top job could hardly be better. It will help calm down global financial markets and stabilise the euro amid economic uncertainty and a lack of political leadership in Europe. Last week EU finance ministers signed off a €78bn bailout for Portugal and a permanent euro rescue mechanism from 2013, but neither addresses the growing divergence between the Eurozone's core and periphery countries. As governments dither over greater fiscal co-ordination and common eurobonds, the ECB's key monetary policy decisions such as interest rates will be key in ensuring the euro's survival.
Draghi's appointment goes against two recent European trends. First of all, a drawn-out process of horse trading that ends in choosing second – or even third-rate – candidates such as Catherine Ashton, the EU's hapless high representative for foreign affairs and security policy, who has failed to raise the union's global profile. Similarly, the various successors to Jacques Delors as European commission president have not distinguished themselves, except by their mediocrity and subservience to the narrow interests of national leaders.
By contrast, Draghi is highly qualified and widely respected. Educated at the prestigious US university MIT, he has taught at Harvard and is one of Europe's best economic minds. Despite being a former Goldman Sachs banker, he has impressed as chair of the G20's financial stability board that drafted the Basel III agreement – the new regulatory framework for banks and other financial institutions. Together with the Italian finance minister, Giulio Tremonti, he is also credited with steering Italy's debt-ridden economy through the crisis without requiring financial assistance.
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