Bloomberg Businessweek The Year Ahead 2019 Global Economics ECB D Mario Draghi's parting gift for Europe could be a rate hike. If Italy behaves itself One day next fall, Mario Draghi may do something | presidency is one of the juiciest prizes in euro he hasn't done in seven years as European Central | land, so there'll be much horse-trading in the Bank president: raise interest rates. months leading up to an announcement. (It's The 71-year-old Italian is in his final stretch as already begun.) the Continent's crisis-fighter-in-chief after a ten- At present, the field of candidates is made up ure defined by multiple volleys of monetary eas- of current or former national central bank gov- ing. With the ECB poised to halt a buying spree ernors from countries that can claim to be in that hoovered up E2.6 trillion ($2.9 trillion) of the Northern Europe (to alternate from Southern region's bonds, Draghi and the other members Europe's current turn). High politics will deter- of the bank's Governing Council are hinting that | mine whether Draghi is followed by Germany's their first move to undo more than half a decade | Jens Weidmann, Finland's Erkki Liikanen, of stimulus might come just before his exit at the | France's Francois Villeroy de Galhau, or another. end of October. Draghi's time in office shows how the clout Europe's economy no longer faces the specter of the job transcends the headache of having to of deflation that Draghi and a generation of U.S.- debate every decision with 24 officials. Through educated central bankers steeped in the history audacious political maneuvering, including occa- of the Great Depression had been taught to fear sionally announcing measures publicly before above all else. Despite a recent wobble, the ECB | they'd been discussed privately, he dragged still judges growth in the 19-country euro zone | his Governing Council into an era of unconven to be on track. Inflation is also seen to be creep- tional monetary easing that few could have antic- ing up toward the bank's target of just less than ipated. At the height of the debt crisis in 2012, 2 percent, and many officials are ready to join the | Draghi unveiled a weapon so powerful that he's global caravan of monetary tightening led by the never needed to fire it: The program, called U.S. Federal Reserve. Outright Monetary Transactions and dubbed "Draghi's legacy By the time rates are raised, many of the ECB's the "bazooka" by the press, permits the ECB to is already written" crisis veterans will have departed in a series of | purchase government-issued bonds provided the management changes that seem to be happen- issuing country agrees to enact stipulated domes- ing all at once. Just as officials toast two decades tic economic measures. The creation of that tool of the euro in January, someone will replace alone was enough to stem the turmoil that had Daniele Nouy at the ECB's bank supervision engulfed the currency union for three years. arm. Soon after, euro region finance ministers "The president matters, and Draghi has been will appoint a chief economist to succeed Peter extremely important," says Goldman Sachs Praet, a longtime ally of Draghi in his years of Group Inc. economist Lasse Holboell Nielsen. wrangling with a German-led minority at the "The ECB's toolbox has been permanently bank that opposed his bond-buying stimulus. enhanced and broadened. You would probably Then, possibly in June, just after elections for want to have a president who gets broad support the European Parliament provide a gauge of the across euro area member states and is amenable Continent's political temperature, governments | toward using those tools." will pick a successor to Draghi himself. The ECB Someone with a record as impressive asBloomberg Businessweek The Year Ahead 2019 Global Economics Draghi's doesn't need to go out with a bang, says The ECB's Gilles Moec, chief European economist at Bank headquarters in Frankfurt of America Merrill Lynch in London. "If he can hike, he will, but if he can't, he won't. I doubt he will lose sleep on this," Moec says. "Draghi's leg- acy is already written." Whether or not the ECB raises rates before he leaves-and the threat of a protectionism-fueled global slowdown, Brexit, or multiple other risks may yet discourage a hike-the extent of any tightening cycle will most likely be determined by Draghi's successor. The first meeting of the Governing Council with Draghi at the helm in November 2011 pro- vides a useful reminder in how quickly such shifts can materialize. The markets had been expecting the ECB to keep rates unchanged, but they got a quarter-point rate cut instead-a sudden change of course after two increases that year under Draghi's predecessor, Jean-Claude Trichet. One potential embarrassment for Draghi as he winds down his term is that the populist gov- ernment in his home country has revived inves- tor concerns about Italy's heavy debt burden. A sustained spike in the country's borrowing costs could yet blight his final months at the ECB, as well as derail any plans for a rate hike. TURE-ALLIANCE/DPA/AP PHOTO Craig Stirling, with Paul Gordon, Xiaoqing Pi, and Carolynn Look KLAUS OHLENS CHLA