Opinion

Where Does the ECB Go From Here?

By Mervyn King

Mervyn King

But the ECB’s main purpose will be to hold the euro system together, and that may have little to do with talents of the usual kind.

I once congratulated Mario Draghi on his performance as president of the European Central Bank, telling him he had made only one mistake. “What’s that?” came the instant question. “Taking the job,” I replied.

My point was that by the time Draghi was appointed, the ECB could no longer hope to be a conventional central bank, if indeed it ever had been. Instead it had to serve as a highly political organization, compelled to stand in for the absent finance ministry of an incomplete political union. That’s an assignment no unelected central banker should relish.

Markets believed Draghi’s vow made in 2012 (ironically, at a conference to promote investment in Britain) that “the ECB is ready to do whatever it takes to preserve the euro.” Investors’ confidence in that commitment, bolstered by the statements of the German chancellor and French president the following day, was partly self-fulfilling: Because they believed Draghi’s promise, it was never actually tested. Such confidence is always more fragile than it looks.

Read full article as published in Bloomberg View

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Lord Mervyn King is the Alan Greenspan Professor of Economics and a professor of Economics and Law, a joint appointment with New York University School of Law.