BERLIN (Reuters) – In August 2012, during a visit to Canada, German Chancellor Angela Merkel swept aside doubts about her support for Mario Draghi and his promise, weeks before, to do whatever it takes to preserve the euro.
The pledge by the Italian president of the European Central Bank met a storm of criticism in Germany. Yet Merkel told reporters gathered in the Canadian parliament in Ottawa that Draghi’s remarks were “completely in line” with her own approach to the crisis.
Her comments helped convince markets that Draghi had the political support to back up his bold words with action, calming fears of a catastrophic euro breakup.
Two and a half years on, the crisis in Europe’s single currency bloc has shifted from acute to chronic and once again it has fallen to Draghi to come to the rescue.
As Europe stumbles into 2015, dogged by weak growth and the prospect of deflation, Draghi is on the verge of launching mass purchases of government bonds with new money – also known as quantitative easing (QE) – in the hopes of jolting Europe’s economy into life.
But this time, it is unclear whether he can count on the same clear support from Berlin.
Without it, the effectiveness of any QE programme could be undermined. More fundamentally, a rift between Germany and the ECB would herald a dangerous new phase for Europe in which the bloc’s two most important shapers of policy are at odds.
In a rare four-page interview with German daily Handelsblatt on Friday, Draghi appeared to go out of his way to reach out and avert such a clash, saying the risk of the ECB failing to preserve price stability had risen and it may need to act to meet its mandate.
“Germany’s position on the QE programme is arguably the single most important issue for the ECB right now,” said Marcel Fratzscher, head of the DIW economic institute in Berlin and a former official at the ECB. “Support from both Merkel and (Finance Minister Wolfgang) Schaeuble will be absolutely vital.”
What has changed since 2012?
For one thing, fears of a euro breakup have subsided. That has made it easier for German officials to push back against policies they disagree with.