As Joni Mitchell so memorably put it, sometimes you don't know what you've got till it's gone. Next week Mario Draghi, head of the European Central Bank (ECB), will hand over the presidency to his successor, former International Monetary Fund (IMF) managing director and French finance minister Christine Lagarde. That might just look like one technocrat handing over to another. But it might have serious and worrying consequences for investors.
Stepping into a storm
Draghi's record and legacy might look like nothing special. After close on a decade, he printed over two trillion euros of new money, chucked it at the banking system and only managed to generate a tepid recovery. Slashing interest rates to zero and taking some key rates into negative territory hasn't helped much either. The ECB has not been able to create the kind of sustained recovery from the financial crash seen in the US and to a lesser extent in the UK. Instead, it has slowly turned into the new Japan. There is not much in that record to brag about.
Except for this: it could have been a lot, lot worse. Draghi steered the eurozone through a crisis that took it to the edge of a break-up. His success was by no means inevitable. With his now famous promise to do "whatever it takes" to ensure the survival of the single currency, he tore up the rule book and started the process of turning the ECB into an activist central bank. Many people assumed it couldn't print money or intervene in the markets to rescue over-spending governments (after all, the treaties do seem to rule that out), but Draghi went ahead and did it anyway.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
He wasn't shy of intervening in national politics when he had to either. It was the ECB's decision to turn off the cash machines that bought the Greeks into line and when Italian prime minister Silvio Berlusconi made noises about leaving the euro, Draghi made sure the bond markets quickly changed his mind. Draghi turned the ECB into the only European institution with the power to shape events rather than just react to them.
A clueless successor
At the ECB she is likely to broker compromises and keep her political masters on board, but will ignore what is happening to the economy and tune out warning signs from the markets. Much as it did in Argentina, that may well lead to disaster. She's unlikely to show any of the flexibility or creativity that allowed Draghi to get ahead of events and bring the markets under control. If there is a recession and a fresh euro crisis during her term it is hard to feel confident she will be able to manage her way through it. A break-up of the euro will be messy, pricey and traumatic. Banks will go down, unemployment will soar, firms will go out of business and equity markets will crash. Without Draghi in charge and with the clueless Lagarde taking over, that is a lot more likely. At some point the markets are going to miss having the man who saved the euro in charge of the ECB.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
The five insurance policies you should have
Is Donald Trump putting the US dollar in danger?
