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9th Dec 2022

Draghi to Bundesbank: 'We are all in the same boat'

  • Draghi (c) with German finance minister Schauble (r). Draghi said on Thursday that he respects German 'stability culture' (Photo: consilium.europa.eu)

European Central Bank (ECB) chief Mario Draghi on Thursday (8 March) pledged allegiance to Germany's "stability culture" and said all his cheap loan decisions were taken in unanimity after a leaked letter from the Bundesbank head exposed a rift on the subject.

Praising the "unquestionable success" of the one-trillion-euro worth of ECB cheap loans aimed at averting a credit crunch in the eurozone, Draghi sought to downplay the disagreement with the German central bank over the programme.

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"We all have to do the right things and do them together. We are all in the same boat. There is nothing to gain, fight or argue publicly outside the governing council," Draghi said in a press conference after the monthly meeting of the ECB council.

He said his personal relationship with Bundesbank chief Jens Weidemann was "excellent" and he was sure that a letter exposing differing points of view over the cheap loans programme published by the Frankfurter Allgemeine Zeitung newspaper had not been leaked by the German banker.

"The substance and content of the letter is present in all our minds," Draghi noted, in reference to the concerns expressed by Weidemann that the ECB risked endangering its reputation by relaxing the criteria for collaterals accepted for the cheap credit.

In Draghi's view, risk-taking is part of the ECB mandate and he insisted that all decisions were taken in unanimity by the ECB council.

He also sought to allay fears that the cheap-cash injection will fuel inflation - a main concern for Germany due to historic experiences with rampant inflation after World War II.

"We cherish the culture of Bundesbank in regards to price stability. We all owe a lot to the Bundesbank and Germany in learning about stability culture and we all have become custodians of stability culture," said the Italian banker.

His appointment - less than six months ago - was made with Berlin's blessing, after the German candidate Axel Weber, unexpectedly withdrew from the race, with German tabloid Bild at the time endorsing Draghi as the "most German of all [the other] candidates."

As for the results of the €1 trillion cash injection - half of it in November and half last week - Draghi said it is too early to assess "how exactly it changed the economic and financial landscape."

But he pointed to the dip in Spanish and Italian borrowing costs, the extra liquidity in the intra-banking market, which was "clogged" last year, and to banks getting their balance sheets in order as positive signs.

"We see many signs of return of confidence in the euro," he said.

He warned that "monetary policy alone cannot solve everything," however. And he insisted that governments should honour the budget deficit rules enshrined in the EU25's new treaty on fiscal discipline - a document pushed forward by Germany based on Draghi's "fiscal compact" suggestions.

German bank breaks anti-inflation taboo

In a marked shift from its age-old taboo of accepting higher inflation, the German Bundesbank has said it may tolerate a devaluation of the common currency to help out crisis-hit countries.

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