As the head of the world’s second-most important central bank, Mario Draghi has influence over the global economy that few other officials do.

Along with the ECB’s executive board, Draghi is responsible for setting the monetary policy of the 17-member eurozone. The stated focus of this policy is price stability. In the ECB’s view, this means medium-term inflation of just less than 2 percent.

The ECB, as with other central banks, can contract the money supply, usually done at times of high inflation, or increase it, a prescription for high unemployment. But just how far the ECB’s powers extend is unclear. While the central bank is barred by EU law from directly financing member countries, the ECB president’s words and actions have muddied that distinction. 

Draghi suggested in a private meeting Wednesday that the ECB could help struggling eurozone countries by buying government bonds due to mature in three years or less. Draghi’s stance suggests a broad interpretation of the reaches of monetary policy.

While EU agreements bar the buying of government debt directly, the ECB has carried out bond purchases before, something critics say is tantamount to financing national governments.

Draghi, who vowed in July to “do whatever it takes to preserve the euro,” faces a mighty test of leadership on Thursday, when he will unveil the next course of action for saving the euro from collapse. Bond purchasing will likely feature, but any plan will need to be both bold enough to reassure markets and sufficiently restrained to convince Germany to foot the bill.

So far, no attempted remedy to the European debt crisis has offered much more than temporary relief. A world weary from protracted economic chaos is waiting on Draghi for a definitive solution.

By John Power  (john.power@heraldcorp.com)