Thursday, September 06, 2012

European political leaders beat back international financial pirates

Mario Draghi, the president of the E.C.B., has managed to outflank some German opposition and gain approval for the European Central Bank to buy bonds of Eurozone countries, in an effort to save the Euro.
'Super Mario' Draghi

This is how the New York Times describes his deed:
The European Central bank took its most ambitious step yet toward easing the euro zone crisis, assuming sweeping new powers to throw its unlimited financial clout behind an effort to protect Spain and Italy from financial collapse…
Mario Draghi, the E.C.B. president, overcame objections by Germany and won nearly unanimous support from the bank’s board for a program of buying government bonds that would effectively spread responsibility for repaying national debts to the euro zone countries as a group.
The announcement is one of the biggest steps yet on the uncertain and winding road to a more federal Europe, instead of the collection of nation states that often seem to share little more than a common currency and a slumping regional economy.
Just who is Mario Draghi?

Today, he is the most powerful man in Europe, and along with Angela Merkel, Germany’s Iron Chancellor, is responsible for beating off attacks by international currency and financial speculators against the Euro. These institutions have steadily targeted the bonds of the weaker southern sisters in the EU (Spain, Italy) and tried to force the stronger members of the EU to step up and guarantee existing debt issued by those government.

Mario Draghi, who has the nicknames Super Mario and Mr. Britannia, has a resum̩ that seems almost impeccable, has achieved something that many thought could not be achieved Рhe has bought time for the Europeans to fix up their house. As The Guardian puts it, he is tough:
Beneath his urbane exterior Draghi is one tough cookie and he has forced his plan through the ECB despite the opposition of the Bundesbank, something that would have been seen as impossible a few months ago.
To sum up, Draghi has bought Europe a bit more time. The can has been kicked a few metres down the road. He has done so by incurring the wrath of the Bundesbank and will know that if this fails, there is little more the ECB can do.
Born in Rome, he earned a Ph.D from MIT (other alumni include Paul Robin Krugman, Ben Bernanke, Benjamin Netanyahu, and Kofi Anan), and has steadily moved upwards in Italian financial circles, culminating in his present position at the ECB.
HMY Britannia
His rise has not been without controversy. On June 2, 1992 he was one of the select circle of influential people invited to meet aboard the Queen’s Royal Yacht, HMY Britannia. The Britannia was the 83rd such Royal Yacht, and is now on permanent exhibition in Edinburgh, Scotland.
The meeting had been arranged by the British group called The Invisibles, and a one-day seminar was held on the privatization of Italian state-held entities. The Queen was not present at this meeting, but some VIPs from various countries were, including George Soros, who shortly thereafter was to take large positions against the Italian and British currencies.

As the Britannia sailed towards the Tuscan coast, the privatization seminar discussed the process of state-owned entity privatization in Britain, and the upcoming Italian privatization plan.

Since then, some have believed that Draghi was involved in discussing a conspiracy by British financial companies to drive the prices of the Italian state-owned entities down and then purchase them for a song; Draghi has maintained that he was only present at the beginning of that session.
George Soros

What exactly is Draghi proposing, and will it succeed?

The Guardian describes his ECB plan this way:
The new plan to rescue the euro sounds complicated, but it really boils down to one thing: a guarantee that nations struggling to raise funds from financial markets will be helped out by the ECB. The scheme even has a name: outright monetary transactions, or OMT, or, as wags dubbed it, on my tab – since that is effectively what Mr Draghi is now offering the rest of the euro club, to put the mother of all credit cards behind the bar. The net result will be to wreck the ECB's balance sheet, but along the way there will also be strict austerity conditions. Before digging into the problems with this latest solution, one big acknowledgment must be made: this is about as big a step as the ECB could have taken.
It also believes that the plan must fail:
Fail it almost certainly will, because success means more than knocking half a percentage point off Italian and Spanish bond yields. It means solving the growth and competitiveness problems of the weaker eurozone countries and convincing their increasingly alienated people that Europe has more to offer than endless misery.
However, I would not bet against the ability of Super Mario and the Iron Lady to save the EU from disintegrating.

They make a tough duo.


  1. So the government is buying bonds from the government using borrowed money in order to shore up the government's ability to borrow money. 'Round and 'round she goes...


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