In a couple of weeks the Italian Mario Draghi will take over as the third Governor of the European Central Bank ( ECB) replacing the Frenchman Jean-Claude Trichet. As the responsible person for the monetary policy of the Euro-zone he will be one of the most powerful people in the world. Among his key-duties are actions on interest rates and money supply as well as providing liquidity to the banking sector.
I think we can agree, that today the role of the ECB-President is even more influential than it was before the economic crises. The central bank makes de facto often the job, that the governments of the Euro zone should, but cannot or do not want to do. One example is the multi-billion acquisition programm of sovereign bonds in order to sustain such securities, like Spanish or Italian government bonds. With such steps the ECB mixes in fiscal policy and leaves it's usual territory of monetary policy - controversial but to appreciate in my view, because pragmatic and without alternatives.
Not at least for that reason many people in financially sound countries like Germany or the Netherlands were initially against the appointment of an Italian at the helm of the ECB. However after a communications campaign during spring it was clear to everybody, that this ominous Mr Draghi is not the "typical Italian", if such a figure exists at all...stability driven, hawkish and careful in his approach he looks more like a German than a member of the Club Med.
What does that mean for his future action? When you read the joint letter, that Draghi and Trichet wrote to Berlusconi seven weeks ago and that was leaked only today to Corriere Della Sera, you'll understand it. In that letter the future ECB-boss holds the pistol on the Italian Prime minister's head telling him in detail, what he has to do now: anticipate the balanced budget to 2013, frontload the bulk of the measures to this year, liberalize the public services etc. This is a formidable paper, because it means that Draghi is leaving the territory of moral suasion and moves towards a pure power play. What is not mentioned in the letter, but clearly laid out by the spirit of the words: or you do this, or you will loose our support. And Berlusconi knows perfectly, that this support consists in massive acquisitions of Italian bonds by the ECB in order to drive down their spread vis-a-vis German bunds. Without this action Italy's public finances would soon run into trouble - and with them also the government itself.
I expect more of that in the future. Italy will not have an easy game, because an Italian sits at the top of the ECB. On the contrary, because he is an Italian he will think twice before helping out his country with money from the ECB. Berlusconi cannot pin his hopes on Draghi. Good for Europe. Good also for Italy.