Euro zone rescuer Draghi faces daunting 2013

Tue Dec 18, 2012 7:56am EST
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By Paul Carrel

FRANKFURT (Reuters) - With two short sentences, the head of the European Central Bank took the heat out of the euro zone crisis this year. In 2013 Mario Draghi has to live up to even bigger expectations.

The ECB's own forecasts suggest the euro zone economy will shrink 0.3 percent next year and markets remain skeptical that the bloc's weaker members, such as Spain and Italy, can fund ballooning government deficits without formal aid programs.

Progress towards closer economic and fiscal union -- deemed essential by policymakers to solve the euro zone crisis -- is likely to be painfully slow in 2013 because two of the bloc's top three economies, Germany and Italy, hold elections.

Draghi's inbox will fill up quickly.

"There will be a lot of focus on preparation for the ECB as the new single supervisor," said Nick Matthews, economist at Nomura, referring to new plans for the ECB to take over supervision of the bloc's biggest banks.

"The other big challenge is the performance of the real economy - does confidence return as the ECB is expecting?"

Draghi had only been in office eight months when he pulled the euro zone back from the brink of break-up by saying in July: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."

Although he began 2012 relatively untried at the European level, with Berlin suspicious, the new ECB president won support from German Chancellor Angela Merkel and her nominee on the ECB board, Joerg Asmussen, for his bold plan to save the euro.   Continued...

European Central Bank (ECB) President Mario Draghi addresses a news conference at the European parliament in Brussels December 17, 2012. REUTERS/Laurent Dubrule