Once upon a time, the central banker drove on autopilot, trusting that markets alone would create economic growth and social welfare. It seems like a century ago, but it's only been 15 years since Bernanke, then chairman of the Fed, theorized that, thanks to its built-up anti-inflationary credibility, an advanced country's central bank could sit by the window and watch the economy head path of "great moderation", with low unemployment and stable prices. Sadly, that idyllic backdrop was abruptly shattered by the 2008 global financial crisis, then challenged by European sovereign crises, and most recently disrupted by the coronavirus. These crises have forced central bankers to roll up their sleeves, taking the field with often unusual and ever more powerful instruments. In short, from a liberal attitude we quickly moved on to strongly interventionist policies. If before they accepted the judgment of the market, with an almost notarial function, today central bankers have become active players who, by profession, want to shape the judgment of the market, given that, left to itself, the market is unable to get out of this wave of repeated and ever deeper crises.
The metamorphosis of the central banker is well represented by the evolution of Mario Draghi's thought which, although it is no longer, it was for a very long time, first at the Bank of Italy and then at the ECB. In fact, strengthened by his preparation, the experience gained, his pragmatism and strategic acumen, Draghi has shown himself to be a very skilled tamer of the markets. In this, he certainly gave proofs no less than those of his illustrious predecessor Guido Carli. In fact, despite being an expression of that weak Italy, which in the Second World War had entered on the losing side to come out among the winners, the young Carli somehow knew how to count at the Bretton Woods negotiating table and then marked the history of the country in various ways and roles, including as Governor of the Bank of Italy. There is some analogy with the arrival of Draghi as head of the ECB: albeit in peacetime, the Italy that expresses it is weak, weakened by the sovereign crisis. Despite this, in a few months he manages to tame the markets. On 26 July 2012, while speculators were sharpening their blades ready to feast on the spoils of the euro, the new president of the ECB burst into the lions' den and tamed them with the magic flute. His memorable speech of the “Whatever it takesThe climate suddenly changes in the City of London. If a minute earlier almost everyone was betting on the imminent implosion of the euro in August (usual month for currency crises because exchanges are rare) that speech brought down certainties. It is true that at the time declaring unlimited interventions by the ECB could have been a bluff, because it would have taken time to overcome internal opposition, which was not lacking, but the risk of losing out was suddenly increased. And, in any case, no one felt like going to see Draghi's cards, who is therefore recognized as the savior of the euro. In the seven years of presidency of the ECB he introduced other innovations, sometimes discussed, as in the case of negative interest rates. In any case, the picture is that of an interventionist central banker, dedicated to correcting market malfunctions.
And, even now that he no longer has a strong institutional role, the reputation of market tamer gives Draghi's interventions a particular meaning. Therefore, it is worth considering carefully his challenging speech at the Rimini Meeting in August. There, the former ECB president gave two main messages. The first was on need to give a prompt and comprehensive response to the pandemic economic crisis. In practice, Draghi has essentially approved what has been done at national and EU level. He wasn't obvious. Last March, after Lagarde's improvident slip, who had initially declared that the ECB shouldn't worry about the interest rate spread between the sovereign debts of the various euro countries (a judgment, however, quickly revised), he had been pulled by the jacket by do a heartfelt editorial on the Financial Times in which he appealed to the EU authorities to renew the spirit of "Whatever it takes", strengthening it in the light of an even more serious crisis. Well, today Draghi notes that, launching sure programs (in support of the unemployed) and Next Generation Eu (for the relaunch of sustainable development), as well as confirming the European Green Deal (EGD) and activating the Messenger, the EU authorities have been able to give answers that are up to the challenge. In particular, he appreciates that the new programs significantly expand the Community budget and sees in this the road to a real EU Treasury Ministry, crucial for remedying the institutional deficit still present in Brussels. In the long run, to tame the markets, i.e. to reduce risk and uncertainty and make the economy work well by avoiding crises, a common monetary policy is not enough, fiscal policy must also be common.
However, the most interesting aspect lies in his second message, which once again makes us appreciate the great caliber of the statesman. It is not enough to settle for restarting the economy without having a vision of where it wants and where it needs to go. Above all because it is being done in debt, dramatically increasing what the State will have to repay in the future. And it will be especially the new generations, today's young people, who are disproportionately affected by the crisis, who will do so. Aware that in German “Schuld” means both “debt” and “guilt”, Mario Draghi then proposes to distinguish between good debt and bad debt. The judgment must be derived from a mixture of economic analysis and ethical considerations. Given that today's financial commitments will be repaid by young people, debt becomes a fault, or "bad debt", if capital is squandered to keep businesses and programs alive with no future, while it is "good debt", without fault, if that capital is channeled to save and grow innovative businesses and programs. In addition to advocating the transition towards sustainable development as a factor of competitiveness, therefore, Draghi indicates as keystones technological innovation and, especially, the enhancement of education programmes. The real lock lies in strengthening education: on the one hand, it increases human capital, reinforcing the competitiveness of the system, and reduces inequalities; on the other hand, it directs public spending to the service of those who will have to bear the greatest burdens, eliminating the "fault".
We have come a long way: from an apathetic notary, the central banker has become increasingly interventionist. From the impalpable arching of the right eyebrow seeing inflation a decimal beyond the expected, to a sweaty and disheveled tamer, complete with whips, sticks and sharp stakes, to convince the markets by hook or by crook in the collective interest. It is also remarkable that Draghi's wisdom invokes education to define good debt, whereas ten years earlier someone said: "It's not that people eat culture".
