Mario Draghi became president of the European Central Bank (ECB) when the financial crisis had reached its depth. At the time, he promised to do “whatever it took” to safeguard the euro from collapse. Eight years later, Draghi has come to the end of his tenure, which by most measures can be judged a success. He stabilized European financial markets and expanded the bank’s monetary policy toolkit. Even Draghi’s critics admit that he managed better than anyone imagined.
At the very end of his mandate, however, Draghi made his most controversial move to date. In September, he announced that the ECB would relax its existing policy instruments and inject 20 billion euros every month into the eurozone in the form of new asset purchases. The mix of policies, Draghi claimed, would continue as long as necessary to shore up the flagging eurozone economies. He argued that it would restore confidence in the market and ensure that banks provide credit for investment in the private sector. Critics responded that by loosening the purse strings, Draghi would lower the profitability of European banking, support firms that may never climb out of debt, and encourage governments to borrow money that they may not be able to repay.
Draghi’s move was strategically timed. As head of the ECB, he had control of European monetary policy—setting interest rates, printing money, and establishing lending guidelines for banks—but not fiscal policy, such as levying taxes and tariffs. He may have thought that by loosening monetary policy at the end of his term, he was creating time and space for his successor, the former managing director of the International Monetary Fund (IMF), Christine Lagarde, to collaborate with the eurozone’s finance ministers in order to relax the fiscal reins.
If so, Draghi miscalculated. The strong case for fiscal stimulus (that is, for lowering tax rates and increasing government spending) has been drowned out by the debate about monetary policy. Instead of asking whether national governments
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