Mario the magician: he will either succeed or fail spectacularly.

AuthorMunchau, Wolfgang

The reign of Alan Greenspan at the Federal Reserve has taught us not to make judgments about a central banker's performance in real time. The adulation the Maestro enjoyed in the late 1990s and early 2000s stands in depressing contrast to a much more muted consensus judgment today. Zhou Enlai got it right: It really is too early to judge the impact of the French revolution.

In that spirit, I can say that it is certainly too early to pass judgment on Mario Draghi, the president of the European Central Bank. My own hunch is that his tenure will end up being seen either as a great success, or as a great failure, but probably nothing in between.

He is serving a single eight-year term, of which less than half has passed. The highlight of the last three and a half years has been a pledge to do "whatever it takes" to save the euro. The concrete embodiment of this pledge was a scheme to provide ex ante unlimited central bank purchases of distressed government debt--conditioned on good behavior A by member states. It goes by the official name of Outright Monetary Transactions.

OMT was a big deal. The architecture of the eurozone had, and still has, many flaws. But one flaw is now fixed. Thanks to Draghi's single-handed intervention, there is now a lender-of-last-resort backstop. It has by far been the most important institutional development since the outbreak of the eurozone crisis. EU leaders could not get themselves to agree to a fiscal union, let alone a political union. They could not agree to issue joint sovereign debt instruments, or transform existing debt into joint and several eurobonds. They set up a firefighting fund, and tidied up some of the rules. But the one real big innovation came from the ECB. Draghi transformed the ECB into a central bank in the spirit of Walter Bagehot.

This was a huge gamble for various reasons. Overtly, it seemed to contradict a clause in European law that the ECB must never monetize government debt. That is the view taken by Germany's constitutional court, the Bundesbank, and the economic and legal establishment. The Germans have been jealously guarding the no-bailout rules and anti-debt monetization rules as the holy grail of the monetary union.

The second reason was the outcome of the gamble was uncertain. I was among those who were not convinced at the time that it would work. It was probably Draghi's biggest intellectual achievement--having correctly calculated the effects of OMT on the behavior of...

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