Jean-Claude Trichet appears to have taken a leaf out Theodore Roosevelt's book, adopting the former U.S. president's mantra to "speak softly and carry a big stick" by discretely pushing Portugal to accept European aid.
In a show of behind-the-scenes strength, the European Central Bank told Portuguese banks to cut their exposure to government debt, the head of the country's banking association (APB) told Reuters.
The pressure from the Frankfurt-based ECB led the banks on Monday to threaten to stop buying government debt if Portugal did not request a lifeline — an ultimatum which probably tipped Prime Minister Jose Socrates into seeking European aid.
The episode highlights the crucial role that Trichet, as ECB president, has taken in responding to the euro zone crisis, quietly but effectively filling a power vacuum left by governments' slow policy response and aided by the ECB's ability to act fast and move markets.
On Friday he denied the ECB had pushed Portugal towards a bailout though a day earlier he did admit the central bank had encouraged Lisbon to request aid.
"He has emerged over a period of several months as an absolutely pivotal figure in attempting to resolve what looks like a near irresoluble crisis," said David Marsh, chairman of management consultancy SCCO International.
"Trichet has marched into the centre of the crisis management — by default, because there is nobody else interested or knowledgeable or forceful enough," added Marsh, author of 'The Euro: The Politics of the New Global Currency'.
The nature of the way the European project has developed has empowered the ECB. With monetary but not fiscal union, there is no pan-European Treasury able to act. Governments, at times divided over how to handle the crisis, take time to move.
Late last month, European leaders gave themselves until June to finalise an increase in their temporary bailout facility at a summit, failing to deliver the broad package they had promised to resolve their debt crisis.
The ECB has enormous fire power, with almost 1.9 trillion euros in Eurosystem assets — those held by euro zone national central bank — under its umbrella.
"Until a country is under EFSF/IMF support, the only player is the ECB," said Deutsche Bank economist Gilles Moec, referring to the aid offered by the European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF).
"The ECB's decision-making process is very swift and they can act in a matter of hours, and they've got a lot of money."
SERVANT TURNED MASTER?
This week's Portugal episode is not the first time the ECB has helped sway the course of a debt-ravaged euro zone country. Last year, its behind-the-scenes manoeuvring and sparing use of its bond buying programme put pressure on Ireland to tap the European bailout fund.
With the leaders of the euro zone's big four countries — Germany, France, Italy and Spain — all weakly positioned at home, Trichet's behind-the-scenes leadership is giving the euro zone some direction at a time of crisis.
But the role he is playing also carries risks. His term expires at the end of October and he will leave big boots to fill. He is also an unelected official playing a role in determining the fate of sovereign countries.
"It's bad from the point of view of the governance of Europe because Trichet should be the servant of the governments, not their master," said Marsh.
"He's undoubtedly doing a good job but the question marks become even more acute when it comes to who will take over from him, which the governments have to decide in the next few months, and the position is extremely opaque," he added.
A Reuters poll of economists in February showed they saw Italy's Mario Draghi as the firm favourite to succeed Trichet, and little has changed since to shift that view.
European leaders are expected to make their choice in the coming months.
"It's a big job," said Moec. "It's about more than just interest rate setting and monetary policy. The ECB is filling a lot of voids in Europe. We need people who understand the political aspects of all this and people who have experience in dealing with governments, in European institutions."
Draghi, a former economics professor with top level experience of government, financial regulation, at the World Bank and in the private sector, ticks those boxes.
