How Mario Draghi's ‘whatever it takes’ philosophy could help save Italy
Insider, February 2021
Mario Draghi comes across as unassuming at first. He hardly ever speaks to the press, does not have an “entourage,” and reportedly carries his own bags when he goes on trips.
By various accounts, he’s a family man who avidly supports the football club of his native Rome, and he likes basketball, too.
But he’s also a superhero, once ranked by Forbes as one of the 10 most powerful people in the world, with the nickname “Super Mario.”
That’s because when it comes to making decisions, Draghi can be dauntless. As chief of the European Central Bank during the Great Recession, he led the fight to save the euro as a currency, and potentially the European Union as a unified entity. And it was all by virtue of his unassuming consistency.
Now, Super Mario will need a similar level of commitment and nerve to tackle his next level of difficulty: His native Italy, the third-largest economy in the eurozone, has turned to him in hopes that he can lead a new national unity government and pull it from the depths of its worst economic downturn since the second world war.
Draghi’s main asset to achieve the feat will be the large influx of cash — about $241 billion — that Italy is set to receive in relief funds from the flagship EU recovery plan. He comes to the job with unquestioned credentials, according to experts.
“He has a possibly broader and deeper insight into economics than any other head of state,” Carlo Invernizzi Accetti, an associate professor of political science at the City University of New York, told Insider. New York Times columnist Paul Krugman called him the “greatest central banker of modern times.”
Draghi’s resume is a star-studded tour through wonkery. Born in postwar Italy in the 1940s, he studied economics at the Massachusetts Institute of Technology (MIT) in the 1970s, where he became the first Italian to earn a doctorate at that institution. After working for the World Bank from 1984 to 1990, he led Italy’s treasury department for a decade before leaving for a job in the private sector with Goldman Sachs, which made him vice chairman and managing director in 2002. After four years, he became governor of the Bank of Italy and was appointed to run the ECB in 2011.
“Mario Draghi is the best man to be prime minister, he saved Europe, he will save Italy,” former Italian Prime Minister Matteo Renzi recently stated during an interview with Bloomberg TV. Investors seem to agree, with Bank of America predicting Italian banks to gain as much as 30% and national bond yields falling to a record low as he takes over as prime minister.
Against this backdrop, experts believe the skills Draghi honed saving the European currency will help him sort out the problems of an economy that, after a devastating 2020, is barely bigger than it was two decades ago.
Understanding leadership dynamics
When Draghi took office as head of the ECB in November 2011, the threat of the bloc’s implosion hung over his tenure. Concerns that Greece could default on its debt were rapidly escalating into the potential for sovereign debt defaults from Italy and Spain, with both countries seeing their borrowing costs soar to unsustainable levels as investors worried that a default or exit from the eurozone by either of them could devastate the area’s financial system.
That’s when Super Mario stepped in.
In July 2012, during a now iconic speech in London, he told investors and the financial world that the ECB under his tenure was ready to do “whatever it takes” to preserve the euro, promising unlimited purchases of eurozone government bonds to deeply indebted countries through newly created money.
When Super Mario spoke, markets listened. Borrowing costs for eurozone countries steadily dropped, effectively doing the work of preventing a euro collapse. His words took on a new resonance last year, as politicians across the EU — and in the UK — repeatedly said they would do “whatever it takes” to defeat the coronavirus. The shadow of Super Mario loomed large.
Amy Verdun, a professor of political science with the University of Victoria in British Columbia, Canada, said she believes that Draghi proved capable of performing such a brilliant crisis management because of his understanding of leadership dynamics.
“Draghi realized that there was a power vacuum because the EU institutional structure did not facilitate speedy decisions, as there was insufficient agreement,” she told Insider. “So he took on a strong leadership role in a time when many others were unwilling or unable to lead, showing to have the guts to take difficult decisions and live with it. This means he understands the power of leadership and how to deploy it during difficult times.”
Securing broad support
As a central banker, Draghi wasn’t only able to manage a traditionally slow-moving and rigid institution to take a more interventionist approach. He was also able to secure broad support, getting most European leaders — including Angela Merkel, whose handling of the Greek debt crisis had been criticized for being financially too strict — to say nothing and remain supportive of a massive money-printing program that would have been unthinkable in earlier ECB orthodoxy.
“His skill here was to realize where the power lay and to obtain support at the right time,” Verdun said. “It is an astuteness to the political minefield and an ability to act strategically that made it possible for him to do well.”
As Draghi faces today Italy’s fragmented and increasingly polarized political landscape, such ability and wit will be crucial to secure cross-party support to put in place a veritable restoration effort and also enact the structural reforms that he regularly urged governments to make while in Frankfurt — a step that countless Italian prime ministers have consistently bypassed.
Running a technocratic government supported by a wide range of political parties remains a formidable job, even for the indomitable Draghi. But, as Verdun, said “In terms of the challenge, he is probably the best person to give it a try.”
[Read the article on Insider]
