Mario and Angela — the euro zone’s pivotal pair

December 17, 2012

European Central Bank chief Mario Draghi and Germany’s Angela Merkel – the two most important people in the euro zone debt crisis response – take to the stage today, the former giving lengthy testimony in the European Parliament, the latter holding a news conference with foreign journalists.

With Greece sorted out for now, Spain and Italy fully funded for the year and markets simmering down, the crisis is in abeyance, in no small part thanks to these two. Draghi provided the game changer with the ECB’s bond-buying plan late in the summer but Merkel has shifted profoundly too during the course of the year – most crucially from considering a Greek euro exit might be a good thing “pour encourager les autres” to realizing it would be a disaster and acting to rule it out and also in backing Draghi’s bold move and ignoring a large measure of German disquiet.

Germany continues to go-slow on future steps, at least in part largely for domestic political reasons, but look where we are now – with an ECB prepared to act in a way that horrifies the Bundesbank, a permanent euro zone rescue fund, a banking union in progress and multiple bailouts agreed and help for Spain likely to come soon – and it’s remarkable to see how far Berlin has moved.

There’s big stuff to come. At least some in the ECB are itching to use their new weaponry – which will require Spain to seek help from the euro zone rescue fund first – and it’s likely they will have to intervene in the bond market to keep speculative attacks on the euro zone’s weak links at bay for an extended period.

Italian elections in February will be unpredictable to say the least and there is still a profound debate to be had on how to build the euro zone’s future structures to knit it together more closely. The euro zone has form in relaxing one the most intense pressure is off it. But for the run-in to the new year at least it’s hard to see any fireworks.

The main outstanding saga is what Mario Monti intends to do, having called time on his government early. There was no hint after he met the president on Sunday. He will resign, maybe later this week, once the Italian budget bill is passed. There is also the matter of who will replace Jean-Claude Juncker as head of the key euro zone finance ministers’ grouping. Dutch Finance Minister Jeroen Dijsselbloem is getting mentioned more and more.

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