He’s the incoming president of the European Central Bank, of course, and he inherits the euro mess that remains Jean-Claude Trichet’s worry through the end of this month. The big policy question surrounding Mr. Draghi’s arrival is whether he’ll change course for the ECB and switch from Trichet’s hawkish stance to using the central bank as a lender of last resort by purchasing the euro region’s distressed debt in a bid to stave off the mounting pressures of deflation?

No one really knows if Draghi, currently the Bank of Italy’s governor, will continue Trichet’s policy or make a radical break. Perhaps Draghi himself is unsure of his plans. In a speech from this past July, he said “it is now necessary to give certainty to the procedure for handling sovereign crises: by clearly defining the political objectives, the instruments and the volume of resources. This is needed to ensure the stability of the area and its currency, and to take full advantage of the strength of its economy and monetary and financial situation.” Does that mean he would act more aggressively and use the ECB to buy up the toxic sovereign debt that is weighing on Europe? Alas, he didn’t say, at least not in this speech.
Whatever Draghi decides, the stakes could hardly be higher–for Europe and the rest of the global economy. The crisis in Europe is already roiling markets around the world, and it could get worse still. Much depends on how the ECB acts, or doesn’t act, once Draghi arrives. For now, the future of ECB policy will likely remain a blank slate until the Italian assumes the helm. Unless, of course, you’re expecting Trichet to make an 11th-hour Hail Mary pass before he departs later this month. Don’t hold your breath.
What we do know is that the idea of a shock and awe campaign by the ECB in purchasing sovereign bonds is controversial in the extreme in Europe. The relatively limited purchases so far have already led to “led to strife on the ECB board,” as The Telegraph put it. But by some accounts, a massive buying program is the only strategy left to save the euro.
Does Mario Draghi agree? To be determined. Meantime, one Italian official who’s worked with Draghi says that the incoming ECB president “is very discreet, very introverted, very reserved. I don’t think you can describe him as hawkish. He is very pragmatic. He has political intuition. He’s not dogmatic in his approach. Every move will be very closely calculated.”
But let’s not be hasty on judging Draghi just yet. As the Financial Times suggests, it’s not so easy to pigeonhole this central banker:

Germans fear that Mr Draghi will be soft on fiscally imprudent southern European countries. The fear in Italy, however, is that an early desire to win German support for the ECB will increase further the pressure on Rome. He has joined with Mr Trichet in piling pressure on Silvio Berlusconi, Italy’s prime minister, to implement fiscal and structural reforms. “If you look at his record on the Italian government, he is one of the central bankers who has taken the toughest stance,” says Elga Bartsch, European economist at Morgan Stanley.

Keeping everyone guessing may be a good thing. Central banks, after all, can sometimes do wonders by surprising the crowd. For good or ill, Draghi’s capacity for engineering a surprise looks potent. But it’s debatable through at least the end of the month if he’ll use that power for Europe’s benefit.