Draghi, Mario

Mario Draghi (1947-) is an Italian economist who has held and holds important politi- cal offices. At the time of writing, he is the President of the European Central Bank (ECB).

Draghi's vision of economic policy is partially, but significantly, influenced by Keynes's theory, although he explicitly affirmed that monetary policy "can become an effective, stabilising factor and contribute to collective prosperity in an independent and active way" only if monetary policy decisions are built "into a systematic and predictable strategy, based on price stability, which drives expectations and guides the economy but doesn't shock it" (Draghi, 2012a).

After receiving a Jesuit secondary education, Draghi graduated in 1970 from the University "La Sapienza" in Rome, under the supervision of the Keynesian economist Federico Caffé - the revolutionary reformist who suddenly disappeared in 1987 - and with a dissertation entitledEconomic Integration and Variation of the Exchange Rates, in which he criticized the project of the single European currency (see Draghi, 2012a, minutes 25:00-25:22). He received a PhD from the Massachusetts Institute of Technology in 1976 under the supervision of Franco Modigliani and Stanley Fisher. During the 1980s, Draghi taught economics at the University of Florence and worked for the Inter-American Development Bank and the World Bank in Washington, DC. In 1990, he was hired as economic advisor at the Bank of Italy.

From 1991 to 2001, Draghi was Director-General of the Italian Treasury. In that position, he led the National Committee for Privatization. In February 1998, the Consolidated Act on Financial Intermediation weakened shareholders' syndicates and voting agreements, relaxed conditions for takeover bids, and introduced several provi- sions designed to protect minority shareholders. As a result, millions of individuals who had previously channelled their savings into government bonds were persuaded to become shareholders and privatizations of important public companies were made easier (Ranci and Prandini, 2004).

Draghi's reform of Italy's economic institutions has recently been deeply criticized by the Italian Court of Auditors: according to the Court's resolution 19/2012/G, the privati- zation of Telecom, Enel, Autostrade, and Ente Tabacchi could yield greater benefits to Italy, and the Committee chaired by Draghi played a more formal than substantial role (Corte dei Conti, 2012), giving too much power to Goldman Sachs, among other con- sultants. Some journalists gathered a possible conflict of interest in this regard. Indeed, Draghi was a vice-chairman and managing director at London-based Goldman Sachs International from 2002 to 2005.

From 2006 to 2011, Draghi took over the governorship of the Bank of Italy and became Chairman of the Financial Stability Forum. In that position, Draghi showed an attentive capacity to understand the growing instability of the international financial system: "Current account imbalances, household indebtedness, large leveraged transac- tions in the corporate sector as well as the growth in market complexity should all be sounding alarm bells", he said at the beginning of 2007 (Draghi, 2007). Not surprisingly, international financial fragility also represents his scientific field of research: in 2003 he had already proposed a New Keynesian theoretical model to analyse specific situations in which significant unanticipated and unintended financial risks are accumulated, offer- ing a framework for measuring the extent of a government's exposure to risk (see Draghi et al., 2003).

In 2011, Draghi was appointed as President of the ECB at a critical time, when the existence of the euro area was being put into question (De Grauwe, 2011; Bibow, 2013). At the beginning of his mandate (November 2011), Draghi decided to reduce the key ECB interest rates by 25 basis points. The theoretical approach he used to justify this non-self-explanatory decision is far from the monetarist Bundesbank orthodoxy. It is based on a model where the analysis of inflation precedes rather than following the analysis of the quantity of money (De Cecco, 2011). The ECB then changed course and Draghi initiated quantitative easing measures, notably two large-scale "Long-Term Refinancing Operations" (LTROs), providing banks with 1 trillion euros of three-year loans in December 2011 and February 2012. This achieved some temporary calming of financial conditions, encouraged some public debt purchases by banks, and had the net liquidity effect of boosting the ECB's balance sheet by some 500 billion euros (Bibow, 2013).

In a famous speech in July 2012, Draghi (2012b) stated that "[w]ithin our mandate, the ECB is ready to do whatever it takes to preserve the euro". He also recognized that the European Monetary Union had been ill-designed: "The euro is like a bumblebee. This is a mystery of nature because it should not fly but instead it does".

Some post-Keynesian economists have expressed a clear appreciation of Draghi's ability to conduct monetary policy during the euro-area crisis (Barbera and Holtman, 2012, p. 14). But the most recent actions of the ECB do not appear to be in line with post-Keynesian suggestions: although Draghi probably understands that (i) the euro-area crisis is a twin banking and intra-area balance-of-payments crisis, and (ii) policy makers would have to bring Southern Europe's borrowing costs down and sustain debtor coun- tries' exports, he decided to endorse a so-called "Macroeconomic imbalance procedure" designed to asymmetrically punish deficit countries, preserving the greatest Northern European creditors (De Cecco, 2013).

The "monetary blockade" of Cyprus in March 2013, implemented by the ECB, has yet to be carefully studied, but it does not seem to have been a decision that was capable of reinforcing the euro area and the wider project for setting up the United States of Europe (see Sapir, 2013).

See also:

Bank of Italy; Deutsche Bundesbank; Euro-area crisis; European Central Bank; European monetary union; Financial instability; Long-term refinancing operations; Quantitative easing.