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What challenges face the new ECB chief?

Mario Draghi has officially taken over from Jean-Claude Trichet as head of the European Central Bank. So what can he expect in his new role?

New ECB chief Mario Draghi
New ECB chief Mario Draghi
Image: Mauro Scrobogna/AP/Press Association Images

THE NEW CHIEF of the European Central Bank, Mario Draghi, takes up the role today.

He comes to the job from his former position as the governor of Italy’s Central Bank, and is an experienced private banker as well as civil servant.

Draghi became the director-general of the Italian Treasury in 1991, moving on after 10 years to become a managing director of Goldman Sachs.

He holds a PhD in economics from the Massachusetts Institute of Technology, and had pursued academic life until being appointed to the Treasury.

It’s not an easy role that Draghi is taking over – he faces a struggle with eurozone governments over how much the bank should do to rescue the indebted countries.

Like his predecessor Jean-Claude Trichet, he has been a consistent defender of the ECB’s tough anti-inflation stance.

He is also a skilled negotiator and will need both this skill and his flexibility as the ECB tries to keep financial disaster from engulfing the EU zone.

Under Trichet,  the bank reluctantly eased its resistance to bailouts and started buying government bonds.

That lowers the rates at which governments borrow and kept Italy and Spain from being driven to insolvency the way Greece, Ireland and Portugal have been.

The bank’s purchases since August have kept Europe from meltdown — but it now wants to hand off the rescue mission to elected governments.

They would handle the crisis through their bailout fund, the European Financial Stability Facility.

Yet the fund, at €440 billion ($623 billion), is considered too small to do so convincingly, and new measures meant to increase its firepower to €1 trillion still lack detail.

Draghi warned Italy last week to fix its budget problems itself, saying: “the hesitancy and delay with which steps to correct imbalances have been taken and measures to correct growth have been adopted.”

He said that the “extraordinary measures” the bank has taken — such as the bond purchases — were “temporary”.

Draghi will hold his first news conference after the ECB’s rate-setting meeting on Thursday.

One of Draghi’s first tasks may involve Ireland, as the ECB has ordered the country to pay €718 million to Anglo Irish Bank bondholders by tomorrow (Wednesday).

Fianna Fáil and Sinn Féin have spoken out against paying the US$1 billion bond, with Fianna Fáil spokesman Michael McGrath calling on the Taoiseach to contact Draghi, to appeal to him to make a last ditch effort to stop the repayment.

- Additional reporting by AP

Read: Italian bank governor to become next chief of European Central Bank>

Read: Govt under pressure over Anglo bondholder payout>

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