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FRANKFURT (Reuters) - Nine months after taking its helm, Mario Draghi is reshaping the European Central Bank and encouraging policymakers to explore options they never considered before - though markets are still unsure where he will lead them next.
Since he succeeded Frenchman Jean-Claude Trichet last November 1, Draghi has led the ECB across a series of red lines his predecessor refused to cross and said late last month there were "no taboos" on what the bank could or could not do.
He went further last Thursday, vowing: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro."
"And believe me, it will be enough," he added, underscoring his message in the boldest comments he has made since taking the presidency and effectively talking himself into a corner.
Now the reserved Italian, who keeps a professional distance even from his closest colleagues, needs to come up with more than words to satisfy expectant markets.
"Draghi has set himself up so either he has got something up his sleeve or the market is going to be very disappointed," said Richard Hunter, head of equities at Hargreaves Lansdown.
Draghi has been here before - and disappointed investors.
In his first appearance as ECB president in the European Parliament last December 1, he told lawmakers that if euro zone governments agreed to a new "fiscal compact", then "other elements might follow".
Many traders took that to mean the central bank was prepared to buy government bonds more aggressively. When that turned out not to be the case, some expressed puzzlement. Draghi himself was perplexed, noting a week later that he "was surprised by the implicit meaning that was given (to my comments)".
His news conference after the ECB's monthly policy meeting on Thursday will determine whether that communications hiccup was a one-off.
The circumstances surrounding his unscripted "whatever it takes" comment last Thursday suggest he is working on a plan and did not just go out on his own with a pledge he cannot back up.
A networker who likes to hear others' views before taking decisions, Draghi took the temperature of the ECB Governing Council before making the pledge in a speech in London, and followed up on Monday by meeting Jens Weidmann, head of Germany's powerful Bundesbank.
This is true to form. Insiders say Draghi is in regular contact with other policymakers, both central bankers and political leaders.
He appeared to lead Europe's most powerful governments into a new commitment to tackle the euro zone debt crisis with his pledge last Thursday. A day later, the leaders of Germany and France vowed to do all in their power to protect the euro.
At the ECB, Draghi encourages debate and intentionally runs a less rigidly controlled ship than Trichet, who was more of a micro-manager who quashed dissent and had a narrower focus.
By contrast, the Italian pushes people to think 'outside the box', and ECB policymakers are doing that in private - even if they remain tied to their mandate of delivering price stability, which Draghi was careful to mention in London.
Draghi has also led the ECB into new policy territory.
Since he took charge, the bank has cut its main interest rate below 1 percent - a floor under Trichet - to 0.75 percent and discarded the Frenchman's view that senior bondholders at failed banks should not suffer losses. The ECB has also flooded banks with 1 trillion euros in ultra-cheap, three-year loans.
This more pragmatic stance is facilitated by new personnel on the ECB's six-member Executive Board, which forms the nucleus of the broader 23-member Governing Council.
Due to resignations, the bank's inner power group has undergone a complete turnover in the last two years, which staggered terms of office were designed to avoid.
Out has gone veteran German chief economist Juergen Stark, overruled for the first time on a rate decision at Draghi's second meeting in charge, and in have come young pragmatists Joerg Asmussen, 45, a German Social Democrat who served as deputy to both centre-left and centre-right finance ministers in Berlin, and Benoit Coeure, 43, a French Treasury high-flier.
The board is more collegiate than during the days of Stark, a central banker from the Bundesbank mould.
Draghi uses the talent around him, taking Asmussen to Brussels summits where the German is well connected, and delegates tasks to clear his mind to focus on big issues.
The biggest challenge he faces is how to overcome Weidmann's objections to the more radical policies the ECB could employ.
Though a generation apart - Draghi is 64 and Weidmann 44 - the two men get on well. But the Bundesbank has been vocal in trying to prevent the ECB taking bolder action it opposes.
"Politicians overestimate the central bank's capacity and place too many demands on it," Weidmann said in an internal Bundesbank interview conducted on June 29 but released on Wednesday, on the eve of the ECB's policy meeting.
Now Draghi must use all his diplomatic skills to broker a deal that Weidmann can wear and markets will welcome.
While markets grew used the code-language Trichet employed to signal future policy moves, they are still adapting to Draghi's different, sometimes more ambiguous, tone.
"It is still not entirely clear what Draghi was signalling with his comments last week," JP Morgan economist David Mackie wrote in a research note. He expected Draghi to outline a strategy where the EFSF bailout fund leads with bond market interventions and the ECB follows with its own purchases.
Draghi's flashes of humour at his news conferences and the sometimes sleepy look in his eyes belie any pressure he may feel. He takes the long view, and sees the euro zone as an unfolding project.
"Markets may be disappointed if they don't see the ECB buy anything this week, but for the medium term a coherent strategy is more important," said Mackie.
Writing by Paul Carrel