Nope, Mario Draghi is NOT everyone’s favorite Italian plumber who wears a red jumpsuit and suddenly grows to twice his size when he eats mushrooms!
Draghi is actually the current Italian central bank governor and has held that position for the past five-and-a-half years. Draghi finished his undergraduate studies at the University of Rome and received his Ph.D. in Economics from the Massachusetts Institute of Technology.
Also on his resume are stints with the Italian Treasury, the European Economic and Financial Committee, the OECD, the Asian Development Bank, the BIS, and World Bank. Yep, he’s a pretty smart dude, almost as smart as I am. Ha!
With former Bundesbank President Axel Weber backing out of the race to be the next ECB President, Draghi was pushed to the forefront and is now slated to succeed Jean Claude Trichet starting November 1. Lucky for him, he has plenty of monetary policy tools at his disposal when he steps in. Remember that Trichet hasn’t implemented any interest rate hikes in the past three meetings, leaving room for Draghi to push rates up if necessary.
Similarly, Draghi can also opt to cut rates and reverse Trichet’s 0.25% rate hike earlier this year if he sees significant downside risks to the euro zone economy. Bear in mind that the ECB recently cut growth forecasts from 1.9% to 1.6% for 2011 and from 1.7% to 1.3% for next year.
Aside from that, Draghi can also extend new emergency liquidity lines to troubled banks in the region.
Of course not everything will be smooth-sailing for Draghi. As we all know, the euro zone is dealing with a worsening debt crisis and I wouldn’t be surprised if Greece has defaulted by the time he takes his post in November.
And let’s not forget the growing rift within the ECB that could further complicate matters. You see, some ECB policymakers aren’t quite seeing eye to eye when it comes to the central bank’s purchases of government bonds from debt-ridden economies. In fact, this was probably why ECB Executive Board members Axel Weber and Jϋrgen Stark decided to call it quits and resigned from the ECB this year.
With two less hawks on board, Draghi might find other members more inclined to ease monetary policy and purchase more bonds from the PIIGS nations. It doesn’t help that Draghi could also face mounting pressure to act in favor of Italy, his home front, which is actually one of the PIIGS. This could make him extremely unpopular among Germans, who strongly oppose further bailouts, making it more difficult for euro zone governments to keep the crisis contained.