BERLIN, Sept 14, 2019 (BSS/AFP) – Central bank chiefs of Germany and the
Netherlands hit out on Friday at ECB chief Mario Draghi for unleashing a huge
stimulus package aimed at propping up the flagging eurozone economy, calling
the action unnecessary and disproportionate.
Slamming Draghi for “overshooting the mark”, Bundesbank chief Jens
Weidmann told Bild daily that “such a far-reaching package was not
necessary”.
ECB governors on Thursday pushed the deposit interest rate further into
negative territory and relaunched net purchases of government and corporate
debt.
But the deep split among the central bankers burst into the open a day
after Thursday’s monetary policy meeting.
Around 10 of the 25 members of the ECB governors were against relaunching
the quantitative easing programme of purchasing 20 billion euros ($22
billion) worth of debt monthly from November, sources told AFP.
Ahead of the meeting, several eurozone central bankers, including
Weidmann, had openly warned against unleashing a new round of stimulus so
swiftly.
“This decision to buy more public debt will make it harder for the ECB to
exit from this policy. The longer (such policies) last, the more the side
effects and financial stability risks of the very expansive monetary policy
will grow,” warned the German central banker.
He also noted that at the losing end of the expansionary policy are
millions of savers, who will see the value of their holdings dwindle in
banks.
Separately, the head of the Dutch central bank, Klaas Knot, issued a
statement saying the “broad package of measures… is disproportionate to the
present economic conditions, and there are sound reasons to doubt its
effectiveness”.
Knot, like Weidmann a hawkish member of the ECB’s governing council, said
there was no need for the measures when the “euro area economy is running at
full capacity”.
“Neither is there a risk of deflation, nor are there any signs pointing to
a euro area-wide recession. The only observation is currently that the
inflation outlook lags behind the ECB’s aim,” he said.
The highly unusual open criticism was noted by the analysts, who pointed
out that while it was not uncommon for central bankers to give interviews
after a monetary policy meeting to air their views, Knot’s decision to issue
a full-blown statement was “a clear first”.
– ‘Count Draghila’ –
Draghi had pointed to three reasons for the ECB’s heavy hand in September:
data and surveys showing the eurozone economy already slowing, looming
threats such as protectionism and Brexit, and downward revisions to the
bank’s economic forecasts.
The ECB’s “big bang” blast of measures has touched a nerve particularly in
Europe’s biggest economy — a nation of savers and a fast-ageing society
where the government’s mantra has been to keep its budget balanced in
preparation for rising pension and health outlays in the coming decades.
Publishing a doctored photo of Draghi with sharp teeth, Bild daily had
headlined their story: “That’s how Count Draghila is sucking our accounts
dry.”
The outrage also cut across to centre-left media, with the Tagesspiegel
broadsheet slamming Draghi’s latest salvo as “horror policy”, warning that it
served neither savers and pension funds nor life insurers.
Rather, it warned that the cheap money was keeping afloat “zombie firms”
that should have gone bust under normal circumstances.
Likewise, Sueddeutsche newspaper said that while Draghi had in his eight
years in office saved the eurozone with his bold action, “Thursday’s
decisions show that he has now lost his way”.
Frankfurter Allgemeine Zeitung daily meanwhile noted that Draghi is
leaving behind a “deeply divided” council to his successor Christine Lagarde,
who will take over after he hosts a last monetary policy meeting in October.
Draghi’s salvo on Thursday had also grated on Germans, as he had put the
onus on governments with budgetary slack to act and help lift the economy.
While Draghi did not name Germany, calls have grown internationally on the
EU economic giant, which has been running up huge surpluses, to loosen its
purse strings.
Amid the recriminations, Finnish central banker Olli Rehn praised the
ECB’s action and called for unity.
In an interview with Bloomberg news, he reminded colleagues that it was
“important that we maintain unity in public appearances and that’s why I
think it’s important that we defend this very good decision.”