Draghi stepped in during euro’s darkest hour

FRANKFURT, Germany (AP) – Mario Draghi leaves as head of the European Central Bank (ECB) credited with having rescued the eurozone from disaster with a well-timed phrase and bold action to back up his words.

He expanded the bank’s arsenal of crisis-fighting tools with new and unconventional policies, measures that he and others say helped end a financial crisis in 2010-2012 and create millions of jobs in the 19-country monetary union.

Yet the closing days of his term have hardly been a victory lap. His departure is accompanied by an unusually public dispute among ECB board members over stimulus policies he pushed for that aim to lower borrowing costs.

Critics question the long-term impact of his stimulus efforts and argue they deterred governments from improving their finances and could lead to troubles down the road.

Draghi’s legacy is in focus as he handed off to his successor, former International Monetary Fund (IMF) Head Christine Lagarde, at an event at the ECB’s headquarters in Frankfurt, Germany, yesterday. She takes office on Friday.

ECB President Mario Draghi. PHOTO: AP

One day will stand out in any account of Draghi’s term: July 26, 2012. Italy was struggling with high borrowing costs in the bond market, Greece needed a second bailout, and the breakup of the shared euro currency, one of the European Union’s core projects, seemed possible.

On that day Draghi told an investment conference in London that the euro was “irreversible” and added that “within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

In the following weeks Draghi convinced the national central bank heads and top ECB officials to back a plan to buy unlimited amounts of the government bonds of euro countries facing financial pressure.

The promise was so bold that it convinced international investors that the euro would not break up: the bond market was calmed, and the programme never needed to be used.

“Draghi turned the ECB into the de facto lender of last resort for the eurozone governments,” said economist Florian Hense at Berenberg bank.

“This act almost single-handedly ended the euro crisis.”

Yet Draghi’s rescue mission bore the seeds of today’s dissent.

Legislators, news media and economists in northern European countries like Germany and the Netherlands argued that intervening in the bond market effectively mean the ECB was propping up governments and relieving them of pressure to shape up financially.