Monday, July 30, 2012

Welcome to the ECB

by Charles Wyplosz


July 30, 2012

Financial markets once again pushed Eurozone leaders to act. European Central Bank President Draghi recently promised to “do whatever it takes”. This column argues that Draghi made an implicit commitment to act as lender of last resort to Eurozone governments. This means optimism may be justified – if only because it suggests that the Eurozone has a great central banker who is both a serious economist and an astute politician.

On Thursday, the President of the European Central Bank, Mario Draghi, created a buzz by saying that the central bank “is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” This was enough to send the euro up and bond spreads down. But what was Draghi really saying? Very smart things, in fact, for the third time.

Draghi’s first installment

On 11 December 2011, barely one month after assuming his new responsibilities, and two weeks after having lowered the interest rate, Draghi said:

“What I believe our economic and monetary union needs is a new fiscal compact – a fundamental restatement of the fiscal rules together with the mutual fiscal commitments that euro area governments have made.” (Draghi 2011)


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