The Alchemists: Three Central Bankers and a World on Fire (56 page)

N
ow, Jean-Claude, it is your turn,” Bernanke
(
right
)
told Trichet
(
center
)
in a private meeting in Frankfurt as the eurozone crisis became more severe.

T
he ECB’s governing council usually met at its headquarters in Frankfurt to set monetary policy for the seventeen-nation eurozone, but in May 2010, as the debt crisis that began in Greece was rapidly spreading to Ireland, Portugal, and Spain, they met instead in Lisbon, shown here. At a dinner later that night, they broached for the first time the possibility of using ECB resources to buy bonds of countries that were under attack from markets.

A
xel Weber
(
lef
t
)
, the president of the powerful German Bundesbank, was initially open to bond purchases in that late-night meeting, but by the next day he had changed his mind. He would become the most vocal opponent of the proposal, seeing it as a form of printing money to subsidize profligate governments. He resigned from the Bundesbank in early 2011, after his differences on this question with most others on the ECB governing council made the idea of his succeeding Trichet in the presidency untenable.

T
he ECB intervention succeeded in easing the sense of crisis in the summer of 2010. But that October, French president Nicolas Sarkozy and German chancellor Angela Merkel went for a walk on the beach at a summit in Deauville, France, where they sketched out a plan to push for private owners of Greek debt to take losses on their holdings. That led to a resumption of the crisis and its spread to Ireland and later Portugal and Spain.

U
nder Trichet
(
right
)
, the ECB became part of the “troika,” the group of international institutions that negotiated with the Greek government, and later those in Ireland and Portugal, over the spending cuts and reforms they would need to undertake as a condition of aid. It put the central bank in the uncomfortable position of dictating to democratically elected leaders what policies to enact. In 2011, Lucas Papademos
(lef
t
)
, the former vice president of the ECB, even became the prime minister of Greece.

I
n October 2011, days before Trichet’s term as ECB president was set to end, an event was held in Frankfurt to honor him. But afterward, instead of remaining in the opera house for a symphony performance, Trichet
(
lef
t
)
, IMF chief Christine Lagarde
(
center
)
, and Merkel
(
right
)
, among others, retreated to a conference room to try to hammer out a new accord to repair Europe.

W
ith no German candidate in line for the job, Trichet’s replacement was Mario Draghi
(right)
, the top Italian central banker and a savvy economist and market maven. But the question was whether “Super Mario” would be able to succeed where Trichet had failed at using the ECB as a force to preserve the eurozone without undermining the institution’s credibility—and the support of the German government.

J
ens Weidmann replaced Axel Weber as the head of the Bundesbank. He continued Weber’s stance of deep skepticism toward any bond buying by the ECB, even as Draghi pushed to defend the eurozone.

W
ith a subtle diplomatic touch and strong background as an economist, Draghi (pictured here at his first news conference in November 2011) guided the ECB governing council to a series of interest rate cuts to try to combat an economic downturn on the continent. He would later announce the Long-term Refinancing Operation, a massive effort to flood European banks with cash, and in September 2012, an unlimited, overarching backstop to try to stand in the way of a eurozone collapse. A united Europe was preserved, at least for the time being.

Z
hou Xiaochuan, the governor of the People’s Bank of China, was a force for modernization and markets in the ascendant economy of China during this era, but he lacked the independence and power to act on his own accord held by the Western central bankers. As such, the Chinese central bank was not part of the joint efforts repeatedly launched by the other industrialized nations.