Experts were skeptical last summer when Mario Draghi gave the speech that saved Europe. Draghi, the president of the European Central Bank, told a London audience that the ECB would do “whatever it takes” to save the euro. At the time, the bespectacled, 64-year-old central banker had nothing to back up his promise. Economists quickly noticed his bravado was out of the fake-it-’til-you-make-it school. “Draghi is damned if he does and damned if he doesn’t,” Carsten Brzeski, senior economist at ING Group in Brussels, told Bloomberg News. “He maneuvered himself into an extremely difficult situation. Expectations are very high.”
Against long odds, Draghi’s bluff worked. Bond markets rallied on the belief that the ECB would deliver on its promise. The market’s surge fed on itself, adding to Draghi’s credibility. Then he recruited German Chancellor Angela Merkel to his side, splitting her off from Jens Weidmann, the hawkish head of Germany’s central bank, the Deutsche Bundesbank. On Sept. 6, the ECB Governing Council put money where Draghi’s mouth was, committing to buy unlimited quantities of sovereign debt if the issuing nations agreed to strict conditions aimed at getting their finances back in order. (Only Weidmann dissented.) Spain and Italy were the main intended beneficiaries.