(The Telegraph) When a rogue protester scaled the platform occupied by European Central Bank president Mario Draghi at his monthly press conference in April, the usually unruffled Italian could be forgiven for being paralysed by fear.
Confronted with female activist shouting “end the ECB dictatorship”, Mr Draghi was showered with pamphlets bearing a list of inchoate threats, accusing the central bank of “autocratic hegemony” and Mr Draghi of being an evil “master of the universe”.
As she was swiftly whisked away by ECB henchman, the Twittersphere was soon abuzz with rumours of the identity and possible motivation behind Mr Draghi’s “confetti-bomber.”
As it turned out, 21-year old German Josephine Witt, was not a disgruntled Greek citizen demanding answers from the ECB chief.
But the feminist agitator was a stark reminder that technocratic central bankers are not immune from public anger over eurozone economic policy.
In the last three months, the Frankfurt-based ECB has become the target of vociferous criticism for its handling of the Greek crisis.
Weeks before the confetti attack, Mr Draghi was heckled by a Greek journalist at a press conference in Nicosia. Before that, he was the subject of a tirade from a Greek MEP during an address at the European Parliament.
On both occasions, the Italian was shouted down as he was forced to defend his institution’s role in Greece’s debt drama.
“In their attempt to respect their duties, the ECB’s policymakers have made themselves political,” Greece’s finance minister Yanis Varoufakis told an audience of academics and economists in Paris last month.
The refrain strikes at the heart of his government’s complaints against the notionally independent ECB.
As one of Greece’s three main creditors – alongside the International Monetary Fund and the European Commission – the central bank is unique in wielding the power that can ultimately force the country out of the single currency.
Despite not officially being party to the political negotiations over extending Greece’s bail-out, the ECB has made a number of discretionary moves since the Syriza government was elected just over 100 days ago.
When he first swept into power, Prime Minister Alexis Tsipras appealed to Mr Draghi to provide some form of bridging finance to keep the country afloat as he sought to re-write the terms of Greece’s rescue programme.
It soon became clear the Italian would not be playing ball.
Not only has the ECB rebuffed requests for temporary financial relief, but its disciplinarian stance has led to accusations that it is acting ‘ultra vires’ – taking politically motivated action outside of its legal remit to ensure financial stability in the eurozone.
ECB has pressured Greece with threats to pull the plug . The first controversial move came as Mr Tsipras and Mr Varoufakis were hot-footing around Europe, drumming up support for their government’s nascent plans to rip up Brussels austerity contract.
On February 4, the ECB’s 28-member Governing Council took a late-evening decision to remove its ordinary funding operations for Greek banks.
The vote was held hours after Mr Varoufakis had met with the ECB’s chief in Frankfurt earlier in the day.
In removing the waiver, which allowed Greece’s banks to post government debt as collateral for cheap cash, the Greek financial system became solely reliant on expensive emergency funds to stay afloat.
Frankfurt said its decision was based on an assessment that it was “not possible to assume a successful conclusion of the programme review”. This was widely interpreted as a threat to the fledgling Leftist government: capitulate, or you will be forced to suffer the consequences.
Greek bank stocks fell by as much as 30pc the following day and the beginnings of a bank run were well in motion.
The ECB has since been forced to inject ever-increasing amounts of emergency loans into Greece. Last week, the Governing Council met to make its 13th weekly hike of the emergency ceiling, taking it to €79bn.
The liquidity squeeze has since intensified. The central bank followed up its action by officially banning Greek banks from increasing their holdings of short-term government debt. This has proven to be another major constraint on the cash-strapped government which is struggling to pay out public sector pensions and salaries.
Tightening the noose
With trust between Greece and its partners fraying, Mr Tsipras vented his frustrations in a letter to Angela Merkel and Mr Draghi in March. He chastised the ECB for making it “impossible” for his government to meet its basic obligations to its citizens.
“I am urging you not to allow a small cash flow issue, and a certain ‘institutional inertia’, to turn into a large problem for Greece and for Europe,” wrote Mr Tsipras.
Alexis Tsipras has sought to bypass Brussels and appeal to Ms Merkel for a breakthrough His pleas have fallen on deaf ears.
Unlike his seminal promise to bring Europe back from the brink in July 2012, Mr Draghi has made no pledge to “do whatever it takes” to save Greece.
Instead, the ECB is considering making it even harder for banks to access emergency funds by toughening up its collateral rules. A decision could be taken as soon as this week.
Board member Yves Mersch has gone as far as to openly suggest Greece may have to issue IOU’s in order to avoid defaulting on its own people this month.
For his part, Mr Draghi fiercely rebuffs accusations of “blackmail”. He maintains the ECB has always been a rules-based institution, and is ready to reinstate its ordinary lending to Greece should a “successful completion” of the current bail-out be carried out.
“The ECB has €104bn exposure to Greece. That’s 65pc of Greek GDP and the highest exposure in the eurozone,” responded the former Goldman Sachs banker, when asked if his institution was “asphyxiating” Greece over its reform programme.
Bail-outs at the end of a gun
As the eurozone has lurched from crisis to crisis, the ECB has always been at the centre of highly-charged arena of political decision-making.
In such moments of crisis, “the ECB is a full-blooded political actor,” notes Jacob Funk Kierkegaard of the Peterson Institute in Washington.
“The central bank’s strategy is aimed at getting recalcitrant eurozone policymakers to do things they otherwise would not do,” notes Mr Kierkegaard.
Threats against Greece are no exception.
Last year, a series of letters between then ECB chief Jean-Claude Trichet and Ireland’s minister of finance revealed the central bank had threatened to cut off emergency funds for Ireland’s beleaguered financial system if the government did not apply for a bail-out in 2010.
The correspondence confirmed that the ECB had held a gun to the head of the government in return for a rescue package worth 100pc of Ireland’s GDP. Similar threats abounded during Cyprus’s bank rescue in 2013.
In a recently published account of the machinations that led up to Greece’s original bail-out in 2010, it was revealed that Mr Trichet and the ECB were the main obstacles to an IMF plan to restructure a portion of Greece’s debt. Mr Trichet feared any move to impose losses on private investors could trigger another “Lehman moment” in the fragile world economy.
The subsequent move to lend more than €300bn in loans to the bankrupt country has been called a “fatal error” by former IMF bail-out chief Ashoka Mody.
The IMF later admitted it had sacrificed Greece at the altar of Europe’s banking system, with more than 90pc of its rescue cash being used to prop up banks in France and Germany rather than keep Greece afloat.
Forced to defend his institution’s accountability, Mr Trichet told a parliamentary inquiry in Dublin last month: “We helped Ireland more than any other central bank helped any other country”.
This familiar rhetoric will ring hollow in Athens.
With the country’s endgame fast approaching, Greece owes the ECB €6.5bn in July and August. The Leftist government has said its preferred default option is to stiff the ECB rather than its senior creditor, the IMF.
But the peculiar timings of Greece’s repayments mean the country may not be able to limp that far into the summer.
Whether the ECB will be forced to crystallize €110bn in Greek losses through its Target2 system in the event of a Grexit, also remains to be seen.
Referring to its resilience to political pressures, the ECB’s first president, Dutchman Wim Duisenberg said of the German central bank: “The Bundesbank is like whipped cream. The harder you beat it, the stiffer it gets.”
It is an epithet that now best applies to the world’s most powerful central bank.