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June 23, 2017

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Mario Draghi shows he's the daring central banker with the magic touch

PARIS--Mario Draghi took another great step this week in leading the eurozone, including the reluctant German Bundesbank, into the world of negative interest rates, showing for the second time that he is a central banker with the magic touch.

"Super Mario," as he is called by many analysts, waved his wand to fight off the rising dangers of deflation by cutting the ECB's three main interest rates so far that one of them means that banks must now pay for the security of parking their cash with the central bank.

In so doing, he has led the European Central Bank into uncharted territory where no leading central bank has ever set foot before.

The policy body of the bank agreed a wave of measures to push more funds through the banking system to stimulate lending, investment and consumption, and indirectly weaken the euro which would help exporters.

Draghi succeeded Frenchman Jean-Claude Trichet, but had already served on the policy committee as governor of the Italian central bank.

Trichet had seen the first financial crisis coming, and had prepared defenses. In a landmark event, on Aug. 9, 2007, he launched special measures to prevent a seizure in the eurozone interbank lending market which could have triggered a systemic collapse.

Those tensions then exposed critical budget and economic weaknesses in some eurozone countries which dragged the single currency area into a debt crisis.

Trichet was in the front line of orthodox crisis management for four years.

This culminated in a letter to the Italy then headed by Silvio Berlusconi that laid down reform conditions in return for any help in buying Italian bonds to push down borrowing rates for the government.

Trichet had won breathing space, but the eurozone was still on the verge of another crisis which could tear it apart and dislocate the European Union when Draghi took over one of the most demanding jobs in global finance, in June 2011.

Some commentators were skeptical that an Italian could retain the respect of the German central bank, the Bundesbank, founded on principles of monetary rigor.

Roman Emperor, with German Steel

The German popular newspaper Bild greeted Draghi with with irony, but soon changed its tone portraying him wearing a German iron helmet.

Last month, the German business newspaper Handelsblatt portrayed him in clothes like a Roman emperor, as "Mario Cesar Draghi" in defense of the euro.

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