European Central Bank chief Mario Draghi appeared in a speech yesterday to defend fiercely-contested new stimulus measures, as debate over September interventions by the institution entered a second month.
“Accepting failure is not an option when there are tools available for public servants to fulfil their mandates,” Draghi told students at the Catholic University of Milan as he accepted an honorary doctorate.
While the Italian economist did not confront head-on the present debate with other central bankers, his speech looking back on his eight-year tenure contained implicit ripostes.
High points since he took the helm include rescue packages to keep the Greek economy in the eurozone and a 2012 “OMT” programme to buy government bonds of distressed countries — so far never used.
Most controversial was the 2014-15 launch of “unconventional” monetary policies, including negative interest rates and “quantitative easing” (QE) mass bond purchases.
The steps are believed to have staved off catastrophic deflation.
Then, as now, opponents mostly from northern European countries said government debt buys and low rates risked undermining “market discipline” on state borrowers — with an eye on heavily-indebted governments like Draghi’s native Italy.
But “as the central bank for the euro area as a whole, the ECB is tasked with looking at the overall picture: whether the benefits...
outweigh the potential costs,” Draghi said.
“The data suggested, and continue to suggest, that this is the case,” he added.
In a meeting on September 12, policymakers agreed to lower interest rates still further into negative territory and restart QE, which had been idling after climbing to €2.6tn ($2.9tn) in 2015-18.
Central bankers from large economies including Germany, France and the Netherlands publicly questioned or opposed the move, while German ECB board member Sabine Lautenschlaeger resigned soon after.
But in Draghi’s and the ECB insist that a majority of policymakers were behind the moves to reach its mandated target of inflation just below 2%.
Some critics have contested whether slowing growth and inflation, mostly driven by trade conflicts and other sources of uncertainty like Brexit, are justification enough for such drastic interventions.
Draghi points to forecasts showing the ECB missing its inflation target out to 2021 as pressing reasons to act.
Harking back to the OMT decision of 2012, Draghi said “inaction would have meant nothing less than the failure of our mandate... this reality made the course taken inescapable”. And in an apparent nod to concerns that QE could overstep self-imposed limits approved by the Court of Justice of the European Union, Draghi noted judges had granted the ECB “broad discretion...
in using all our tools in a necessary and proportionate way.”
“I have described our position as the obligation to ‘do everything it takes... within our mandate, and to achieve our mandate’,” he added.
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