“Move over, Ben Bernanke. This is Mario Draghi’s moent,” wrote the Associated Press’s Paul Wiseman and Bernard Condon. The perception is that the monetary ball is in Europe’s court so all attention is on Mario Draghi, president of the European Central Bank (ECB).
The annual conclave at Jackson Hole, Wyoming missed the star player when Mario decided to stay in Europe rather than speak to the conclave sponsored by the Federal Reserve Bank of Kansas City. Last week, noted the New York Times, the “took its most ambitious step yet toward easing the euro zone crisis, throwing its unlimited financial clout behind an effort to protect Spain and Italy from financial collapse.”
Mario Draghi, the president of the central bank, won nearly unanimous support from the bank’s board to buy vast amounts of government bonds, a move that would relieve investor pressure on troubled countries but also effectively spread responsibility for repaying national debts to the euro zone countries as a group.
The decision propels political leaders farther down the uncertain and winding road toward a Europe with centralized control over government spending and economic policy, instead of a collection of nation states that sometimes seem to share little more than a currency and a slumping regional economy.
Draghi has famously said that he will “do what it takes” to keep the eurozone united and functioning. But Mario has a tough job – one that requires surgery has well has effectively drowning the patient in cash. “Super Mario, as European Central Bank president Mario Draghi has become known, cheered the world's financial markets last week with his bold plan to buy unlimited quantities of crisis-hit governments' bonds to shore up the euro,” noted the Guardian’s Heather Stewart. She noted:
The plan should bring down borrowing costs for Spain and Italy and break the vicious circle in which investors demand higher interest rates because they fear a country could be forced out of the euro – and the resulting pain would make a euro exit all the more likely. In the longer term, if we ever get there, it should also help Portugal, Greece and Ireland to go back to borrowing in international markets.
But central banks can only do so much: Draghi has no lever to pull which would fix the deep divisions between the "core" economies of Germany and its northern neighbours and the uncompetitive, recession-hit south.
Meanwhile, many of the world’s central bankers have decided to buy real money rather than print the fake kind. Chris Vermeulen has written that “central banks all over the world are rebuilding their stockpiles of gold. After two decades of heavy selling, central banks became net buyers of gold in 2010 and the momentum has built since. Gold will likely end up being used as "good" collateral by global central banks, as opposed to the shaky collateral sovereign bonds are turning into.” He wrote:
Central bank purchases, led by the emerging markets, are on track this year to hit a record high according to the World Gold Council. China alone in 2011 bought around 490 tons of gold. Other countries including Russia, Turkey and South Korea have added gold to their official holdings in recent months.
Ah, the super gold standard to which Super Mario can only aspire.