Page 64 - Bloomberg Businessweek - November 19, 2018

Bloomberg Businessweek The Year Ahead 2019 Global Economics

of the Great Depression had been taught to fear
above all else. Despite a recent wobble, the ECB
still judges growth in the 19-country euro zone
to be on track. Inflation is also seen to be creep-
ing up toward the bank’s target of just less than
2 percent, and many officials are ready to join the
global caravan of monetary tightening led by the
U.S. Federal Reserve.
By the time rates are raised, many of the ECB’s
crisis veterans will have departed in a series of
management changes that seem to be happen-
ing all at once. Just as officials toast two decades
of the euro in January, someone will replace
Danièle Nouy at the ECB’s bank supervision
arm. Soon after, euro region finance ministers
will appoint a chief economist to succeed Peter
Praet, a longtime ally of Draghi in his years of
wrangling with a German-led minority at the
bank that opposed his bond-buying stimulus.
Then, possibly in June, just after elections for Group Inc. economist Lasse Holboell Nielsen. ▲The ECB’s
the European Parliament provide a gauge of the “The ECB’s toolbox has been permanently headquarters
in Frankfurt
Continent’s political temperature, governments enhanced and broadened. You would probably
will pick a successor to Draghi himself. The ECB want to have a president who gets broad support
presidency is one of the juiciest prizes in euro across euro area member states and is amenable
land, so there’ll be much horse-trading in the toward using those tools.”
months leading up to an announcement. (It’s Someone with a record as impressive as 19
already begun.) Draghi’s doesn’t need to go out with a bang, says
At present, the field of candidates is made up Gilles Moec, chief European economist at Bank
of current or former national central bank gov- of America Merrill Lynch in London. “If he can
ernors from countries that can claim to be in hike, he will, but if he can’t, he won’t. I doubt he
Northern Europe (to alternate from Southern will lose sleep on this,” Moec says. “Draghi’s leg-
Europe’s current turn). High politics will deter- acy is already written.”
mine whether Draghi is followed by Germany’s Whether or not the ECB raises rates before he
Jens Weidmann, Finland’s Erkki Liikanen, leaves—and the threat of a protectionism- fueled
France’s François Villeroy de Galhau, or another. global slowdown, Brexit, or multiple other risks
Draghi’s time in office shows how the clout may yet discourage a hike—the extent of any
of the job transcends the headache of having to tightening cycle will most likely be determined
debate every decision with 24 officials. Through by Draghi’s successor.
audacious political maneuvering, including occa- The first meeting of the Governing Council
sionally announcing measures publicly before with Draghi at the helm in November 2011 pro- is already written” “Draghi’s legacy
they’d been discussed privately, he dragged vides a useful reminder in how quickly such shifts
his Governing Council into an era of unconven- can materialize. The markets had been expecting
tional monetary easing that few could have antic- the ECB to keep rates unchanged, but they got a
ipated. At the height of the debt crisis in 2012, quarter-point rate cut instead—a sudden change
Draghi unveiled a weapon so powerful that he’s
of course after two increases that year under
KLAUS OHLENSCHLÄGER/PICTURE-ALLIANCE/DPA/AP PHOTO the “bazooka” by the press, permits the ECB to he winds down his term is that the populist gov-
never needed to fire it: The program, called
Draghi’s predecessor, Jean-Claude Trichet.
One potential embarrassment for Draghi as
Outright Monetary Transactions and dubbed
ernment in his home country has revived inves-
purchase government-issued bonds provided the
issuing country agrees to enact stipulated domes-
tor concerns about Italy’s heavy debt burden.
tic economic measures. The creation of that tool
A sustained spike in the country’s borrowing
costs could yet blight his final months at the
alone was enough to stem the turmoil that had
ECB, as well as derail any plans for a rate hike. <BW>
engulfed the currency union for three years.
�Craig Stirling, with Paul Gordon, Xiaoqing Pi,
“The president matters, and Draghi has been
extremely important,” says Goldman Sachs
and Carolynn Look