Picking the next head of the European Central Bank

Mario Draghi won wide support as the next President of the European Central Bank Wednesday when 33 of 39 MEPs on the Economic Affairs Committee voted in favour of his candidacy. The whole Parliament will vote on 23 June. During an exchange of views, Mr Draghi's technical skills were widely praised, but some MEPs were critical of his work for US investment bank Goldman Sachs.

Central bankers must pick their words carefully because their announcements can move global markets, particularly in times of crisis. Mr Draghi, the serving head of the Italian Central Bank, showed himself a master of the art when he appeared before the committee, but he also managed to make himself clear.

"Mario Draghi put up a very competent and interesting performance at his hearing, which gained wide support...I am very pleased to put forward a positive recommendation for him to next week's plenary and look forward to working with him," committee chair Sharon Bowles said after the final vote.

Greece: it can be done

Asked about whether a sovereign default was inevitable or even advisable in Greece, Mr Draghi talked about the experience of Italy in the early 90s. "Italy was in a worse condition than Greece or Portugal today. But...we issued a reform programme and we managed it" and the same is possible in Greece, he said. "We have to have faith in the fact that it can be done." 

A default or any other sort of non-voluntary credit event could have a disastrous outcome, he told MEPs. "We haven't yet learned how to manage a sovereign default, but we have to assume that the costs will outweigh the benefits."

Reforming economic governance

Avoiding default, he said, is however a political rather than a monetary task. More European economic governance, as demanded by Parliament, is now necessary, he said. "The sovereign debt crisis is a real test of political will in Europe to do what is necessary to integrate fiscal and financial policies."

He said that rather than pushing for a European Finance Minister or eurobonds, the EU should concentrate on reinforced supervision. Mr Draghi said that weakening the stability and growth pact five years ago was an error and that automatic penalties are necessary.

He also said politicians should look beyond budgetary discipline to fields like competitiveness that are not yet part of common binding EU rules. "I think this is more realistic than a quantum leap towards new institutions."

Fighting Inflation

Mr Draghi said that the ECB would keep on focusing primarily on the fight against inflation. "Not even a sovereign debt crisis could ever make the ECB detour from the price stability objective."

Some MEPs criticised his work at Goldmann Sachs and asked whether this would damage his reputation as an independent guide of the euro-zone.  But Mr Draghi said that he had never worked with governments and that he had been one of the first to warn of exaggerated risks in banking and housing markets.