On November 1, Mario Draghi officially concluded his duty as president of the European Central Bank (ECB) after eight challenging years, yielding the floor to the former International Monetary Fund Chairman Christine Lagarde who will have to face as many issues as her predecessor. It is undeniable how relevant the ECB has been during the past years in managing the post-crisis period and maintaining the eurozone stability. If we look back to the huge problems we have been able to face without bearing tremendous consequences, a big tribute should be paid to our former ECB president Mario Draghi, who will be remembered in our modern history books for the famous sentence: “ECB is ready to do whatever it takes to preserve the euro and, believe me, it will be enough” (July 12, 2012). How could a non-elected head of an economic institution be able to ask European people to trust him? Did he keep his word?
For those who are unfamiliar with the ECB, its duty is maintaining eurozone equilibrium, which has many variables to take into consideration like the inflation ratio, GDP growth, and the sacrifice ratio. The last one expresses the connection between economic growth and prices increase and indicates how a country (in aggregate the eurozone) will respond if the level of inflation changes (positively or negatively) by 1%. By supervising these three indexes, monitoring the market performances and having strong aims, Mario Draghi won the match against instability.
It had not been a simple task. At the beginning of Draghi’s mandate, the financial crisis demanded a strong reaction from the EU and the ECB to deal with the collapse of the Greek economy, the losses (equal to the 55% of the GDP) of the Irish Central Bank and the financial difficulties of Portugal. The tensions of these countries spread to all the main financial markets of the Union and rating agencies made lending in the eurozone even more difficult by downgrading their credit ratings. These facts obliged the member states to adopt austerity measures, which slowed down growth bringing countries, in some cases, to a recession. Mario Draghi’s ECB has had a clear focus: re-establishing the reliability of the European market and having an expansive monetary policy in order to tackle the deflation and recession risks.
To reach this target, Mario Draghi followed a long path that started with loans and bank recapitalization thanks to the European Financial Stability Facility (EFSF) which temporarily diminished tensions. Throughout the years, ECB interventions became more incisive: Long Term Refinancing Operations (LTROs) contained the crisis until the recourse to the Targeted Long Term Refinancing Operations, which consisted of buying covered bonds (debt securities issued by a bank). At the beginning of 2015, ECB launched its stocks purchasing programme known as Quantitative Easing (QE). As a result of this measure, the market sentiment improved leading to a decline in the recession and to an interruption of the deflation spiral.
Thanks to his extraordinary capabilities to understand what lies behind macro-economic problems and to find optimal solutions, Mario Draghi was able to build a reliable figure around the ECB presidency for both ordinary citizens and enterprises.
We owe Draghi a debt of gratitude for his ability to carefully read market signals and react wisely.
We can only hope that his successor will do the same.