Europe’s leaders worship Mario Draghi. They should listen to him instead

European Central Bank President Mario Draghi secured a place in history by his demonstration, on 26 July 2012, of the power of words in a financial crisis. Not long in office, he had already shown willingness to act firmly, averting a liquidity crunch by providing three-year lending facilities for European banks. That day, he told a conference in London: ‘Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.’ While the rest of the speech was an opaque metaphor about the euro as a bumblebee — ‘a mystery of nature because it shouldn’t fly but instead it does’ — ‘whatever it takes’ was clear enough to steady the bond market and ease borrowing costs of eurozone governments. A central-banking veteran from the same mould as Mark Carney (both have also done time at Goldman Sachs), Draghi has achieved more authority than either of his predecessors — the downbeat, chain-smoking Wim Duisenberg and the posturing, ineffectual Jean-Claude Trichet. Most of Europe is now hoping he has another trick up his sleeve to head off the threat of deflation and restart growth, which fell back to zero across the single-currency zone in the second quarter. The trick they are expecting is, of course, quantitative easing (QE) — a bond-purchase programme that would pump cash into the system, pushing prices upwards and, theoretically, boosting the availability of credit for businesses. Investors are busy buying government bonds (and driving down yields) in anticipation of selling them at a profit to the ECB. At a meeting of central bankers at Jackson Hole, Wyoming, last week, Draghi signalled that stimulus is in the offing — but it remains unclear whether QE as practised in Washington and London is actually permissible ‘within our mandate’, and he’s up against resistance from Germany to any measure that might stoke inflation.