Thursday

23rd May 2019

ECB brushes off German criticism

  • Draghi: "We obey the law, not the politicians because we are independent" (Photo: European Central Bank)

The European Central Bank (ECB) on Thursday did not change its monetary policies and vigorously defended them in face of German criticism.

"We have a mandate to pursue price stability for the whole of the eurozone and not only for Germany," ECB president Mario Draghi said at a press conference after the institution's monthly meeting.

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"This mandate is established by the treaty and Europan law. We obey the law, not the politicians because we are independent," he said, adding that this position was unanimous within the ECB's governing council. All eurozone national central bank chiefs, including Germany's Jens Weidmann, are a member of that council.

He warned that "any time the credibility of a central bank is perceived as being put in question, the result is a delay in the achievement of its objective.”

The ECB's policy of low interest rates to fight the risk of deflation in the eurozone was recently criticised by the German finance minister Wolfgang Schaeuble.

In an interview with the Reuters press agency last week, Schaeuble said that it was "indisputable" that low interest rates were causing "extraordinary problems" for German banks and private pensions.

"That is why I always point out that this does not necessarily strengthen citizens' readiness to trust in European integration," he said.

Schaeuble was even quoted by Dow Jones reporters as telling Draghi that he could be "proud" that 50 percent of the electoral results obtained by the anti-euro and anti-immigrant party Alternative for Germany could be attributed to the ECB's policies.

On Thursday the ECB maintained the record low interest rates set last month.

The interest rate on bank, states and institutions deposits to the ECB remains in the negative at -0.4 percent.

The interest rate of the money it lends to banks for a week remains at 0.00 percent, and the rate for the overnight credit to banks at 0.25 percent.

'Our policies work'

Draghi insisted that low interest rates were "not a specificity of the eurozone" and said they were "a symptom of low growth and low inflation", not a consequence of the ECB's monetary policies.

"If we want to return to higher interest rates we have before to return to higher growth and higher inflation. And to do so we need the current monetary policy," he said.

"Our policies work, they are effective. Just give them time to fully display their effect, " Draghi also said, pointing at eurozone countries' responsibilities.

"If there were structural reforms, the effect would be quicker," he said.

He said that the ECB's monetary measures had been the "only policies in the last four years to support growth" in Europe.

"Monetary policy is not the only necessary condition for returning to structural long term sustainable growth. You have to have other conditions, first and foremost structural reforms," he said.

Moderate growth

The ECB-Germany controversy comes as prospect for the eurozone economy are still uncertain, with a limited recovery and doubts about the effect of the "bazooka" measures taken by the central bank.

In addition to the quasi-zero interest rates decided last month, the ECB also started to increase the amount of bonds it buys on market from €60 billion to €80 billion a month in order to boost economic activities.

The ECB will also launch in June a new round of loans to financial institutions and bond buying.

But eurozone growth remains "moderate but steady" Draghi admitted. It is driven by consumption and investment but dampened by global uncertainties, weak exports and slow reforms.

Draghi also said that low inflation would last for a long time and that “we have to be patient".

'Limited' Brexit impact

He cut short speculation about the ECB creating so-called "helicopter money" that would be directly pumped into the real economy.

"It's a very interesting concept ... but we haven't studied it," he said

Asked about the impact of the referendum campaign in the UK and the risk of seeing the country leaving the EU, the ECB chief said that the main victim of market concern so far had been the British pound.

He said the risk that a possible Brexit could endanger eurozone economic recovery was "limited".

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