Draghi To Lagarde: The Meaning Of A Momentous ECB Handover

Europe's Central Bank chief acted in past years to absorb EU bank debts and keep money flowing amid a major recession. Stable growth now depends on responsible policies by EU member states.

President of the ECB Mario Draghi in Frankfurt
President of the ECB Mario Draghi in Frankfurt
Olivier Blanchard*

PARIS — Since its inception, the European Central Bank (ECB) has undergone an extraordinary transformation. Its initial incarnation did not seem promising, at least to those of us viewing it from the other side of the Atlantic. It is an edifice built on two pillars, one of which (the M3 monetary stock) seemed obsolete and shaky. Its inflation target was asymmetrical and a little vague; It was not allowed to buy government bonds and lacked euro-level regulatory and financial supervision powers. With all this, it seemed to have all the ingredients needed for failure.

Diplomatic talent

And it came close to failing. But in the face of these challenges, the ECB transformed itself, creating liquidity offer programs, expanding the list of assets it could buy, introducing negative interest rates and even pushing for EU banking unification. Its record so far is impressive.

These changes were not entirely due to its president, Mario Draghi. His predecessor, Jean-Claude Trichet, began the process facing an economic crisis but in his eight years as president, Draghi accelerated its rhythm. Using the leverage of financial crises and tensions and combining them with unusual diplomatic skills, Draghi introduced the tools the ECB needed to tackle the euro's crisis with a string of programs.

European Central Bank Photo by Finn Protzmann on Unsplash

The headquarters of the European Central Bank in Frankfurt, Germany — Photo: Finn Protzmann

His contribution is best summed up in the three words he uttered in London in July 2012 — "Whatever it takes' — at a time when investors were starting to doubt the euro's very continuation, and amid sharply rising interests on government bonds. Just those words, without the ECB having to take the slightest measure, may have sufficed to save the euro.

​Limiting adverse reactions

But big preparations were underway behind those words. To ensure the ECB could effectively honor its pledge, the OMT (Outright Monetary Transactions) program aimed at turning those words into action, began within months. This was also to make sure the opposition had sufficiently weakened to limit adverse reactions and expressions of doubt on the credibility of the Bank's declarations. These are the talents Draghi has shown over eight years.

Today, does his successor Christine Lagarde face an easy task? Unfortunately not. What would happen if one of the euro-zone governments were to misbehave and unleash the next crisis? How would the OMT work if it had to be utilized? Unified banking is far from being completed. Could we forego euro-zone guarantees for deposits, and how much government debt should banks be allowed to hold?

Still many questions

The most important problem is elsewhere. With negative interest rates, purchase of government bonds and a generous supply of liquidity, monetary policy has done all it can. That is how we should interpret the dissensions seen at the last ECB council meeting. The marginal benefits of new measures are slight nor is it surprising to see reasonable people disagree (and even less surprising when some are unreasonable, as is partly the case...). It is time to recognize that macroeconomic aid must now come from elsewhere, that is in budget policies, as Draghi has himself stressed. What we need is a budget Draghi (or many, as budget policies are forged at the national level), acting with the same pragmatism and courage. Europe may very well need a few of them.

*Blanchard is a former chief economist at the International Monetary Fund.

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Why This Sudan Coup Is Different

The military has seized control in one of Africa's largest countries, which until recently had made significant progress towards transitioning to democracy after years of strongman rule. But the people, and international community, may not be willing to turn back.

Smoke rises Monday over the Sudanese capital of Khartoum

Xinhua via ZUMA
David E. Kiwuwa

This week the head of Sudan's Sovereign Council, General Abdel Fattah El Burhan, declared the dissolution of the transitional council, which has been in place since the overthrow of former president Omar el-Bashir in 2019. He also disbanded all the structures that had been set up as part of the transitional roadmap, and decreed a state of emergency.

In essence, he staged a palace coup against the transitional authority he chaired.

The general's actions, which included the arrest of Prime Minister Abdalla Hamdok, are a culmination of a long period of tension between the civilian and military wings of the council.

A popular uprising may be inevitable

The tensions were punctuated by an alleged attempted coup only weeks earlier. The days leading to the palace coup were marked by street protests for and against the military. Does this mark the end of the transition as envisaged by the protest movement?

Their ability to confront counter revolutionary forces cannot be underestimated.

The popular uprising against Bashir's government was led by the Sudan Professional Association. It ushered in the political transitional union of civilians and the military establishment. The interim arrangement was to lead to a return to civilian rule.

But this cohabitation was tenuous from the start, given the oversized role of the military in the transition. Moreover, the military appeared to be reluctant to see the civilian leadership as an equal partner in shepherding through the transition.

Nevertheless, until recently there had been progress towards creating the institutional architecture for the transition. Despite the challenges and notable tension between the signatories to the accord, it was never evident that the dysfunction was so great as to herald the collapse of the transitional authority.

For now, the transition might be disrupted and in fact temporarily upended. But the lesson from Sudan is never to count the masses out of the equation. Their ability to mobilize and confront counter revolutionary forces cannot be underestimated.

Power sharing

The transitional pact itself had been anchored by eight arduously negotiated protocols. These included regional autonomy, integration of the national army, revenue sharing and repatriation of internal refugees. There was also an agreement to share out positions in national political institutions, such as the legislative and executive branch.

Progress towards these goals was at different stages of implementation. More substantive progress was expected to follow after the end of the transition. This was due in 2022 when the chair of the sovereignty council handed over to a civilian leader. This military intervention is clearly self-serving and an opportunistic power grab.

A promised to civilian rule in July 2023 through national elections.

In November, the rotational chairmanship of the transitional council was to be passed from the military to the civilian wing of the council. That meant the military would cede strong leverage to the civilians. Instead, with the coup afoot, Burhan has announced both a dissolution of the council as well as the dismissal of provincial governors. He has unilaterally promised return to civilian rule in July 2023 through national elections.

Prior to this, the military had been systematically challenging the pre-eminence of the civilian authority. It undermined them and publicly berated them for governmental failures and weaknesses. For the last few months there has been a deliberate attempt to sharply criticize the civilian council as riddled with divisions, incompetent and undermining state stability.

File photo shows Sudan's Prime Minister Abdalla Hamdok in August 2020

Mohamed Khidir/Xinhua via ZUMA

Generals in suits

Since the revolution against Bashir's government, the military have fancied themselves as generals in suits. They have continued to wield enough power to almost run a parallel government in tension with the prime minister. This was evident when the military continued to have the say on security and foreign affairs.

For their part, civilian officials concentrated on rejuvenating the economy and mobilizing international support for the transitional council.

This didn't stop the military from accusing the civilian leadership of failing to resuscitate the country's ailing economy. True, the economy has continued to struggle from high inflation, low industrial output and dwindling foreign direct investment. As in all economies, conditions have been exacerbated by the effects of COVID-19.

Sudan's weakened economy is, however, not sufficient reason for the military intervention. Clearly this is merely an excuse.

Demands of the revolution

The success or failure of this coup will rest on a number of factors.

First is the ability of the military to use force. This includes potential violent confrontation with the counter-coup forces. This will dictate the capacity of the military to change the terms of the transition.

Second is whether the military can harness popular public support in the same way that the Guinean or Egyptian militaries did. This appears to be a tall order, given that popular support appears to be far less forthcoming.

The international community's appetite for military coups is wearing thin.

Third, the ability of the Sudanese masses to mobilize against military authorities cannot be overlooked. Massive nationwide street protests and defiance campaigns underpinned by underground organizational capabilities brought down governments in 1964, 1985 and 2019. They could once again present a stern test to the military.

Finally, the international community's appetite for military coups is wearing thin. The ability of the military to overcome pressure from regional and international actors to return to the status quo could be decisive, given the international support needed to prop up the crippled economy.

The Sudanese population may have been growing frustrated with its civilian authority's ability to deliver on the demands of the revolution. But it is also true that another coup to reinstate military rule is not something the protesters believe would address the challenges they were facing.

Sudan has needed and will require compromise and principled political goodwill to realise a difficult transition. This will entail setbacks but undoubtedly military intervention in whatever guise is monumentally counterproductive to the aspirations of the protest movement.


David E. Kiwuwa is Associate Professor of International Studies at University of Nottingham

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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