Draghi era ends with divisions over latest stimulus

FRANKFURT, Germany (AP) — European Central Bank (ECB) chief Mario Draghi, whose vow to do “whatever it takes” is seen as a turning point in the eurozone’s debt crisis, presided over his last policy meeting yesteday amid unusually strong internal opposition to the latest stimulus package that will be part of his legacy.

The bank’s 25-member governing council made no changes in interest rates or the bank’s bond-purchase stimulus after announcing an array of measures last September 12.

The meeting at the bank’s skyscraper headquarters in Frankfurt, Germany was attended by Draghi’s designated successor, former International Monetary Fund (IMF) head Christine Lagarde, who takes office on November 1 after being chosen for the post by eurozone governments.

The defining moment of Draghi’s eight years in office was his statement on July 26, 2012 that the ECB would “do whatever it takes to preserve the euro, and believe me, it will be enough.”

That vow, backed up by a promise to buy unlimited amounts of government bonds if needed to lower excessive borrowing costs, has been widely credited with calming financial market pressure on indebted governments such as Italy and thereby rescuing the currency union from disaster.

Yet yesterday’s news conference focussed on more current issues.

In his last days in office, Draghi has faced unprecedented pushback from among the bank’s own officials against the latest stimulus moves announced last September 12. The bank cut the rate on overnight deposits from banks to minus 0.5 per cent from minus 0.4 per cent, announced EUR20 billion per month in bond purchases starting on November 1 and lasting indefinitely, and said rates will stay at current lows until things have definitely taken a turn for the better.

The central bank heads from member countries the Netherlands, Germany, and Austria have openly questioned the decision, and a German member of the bank’s top leadership who had opposed the bond stimulus as premature resigned after the meeting without publicly stating a reason.

Draghi himself made it clear that the package would need help from some governments to spend more on things like infrastructure — a call that has not been met with a resounding response from eurozone leaders.

The September measures were “highly controversial” and “whether they will make any difference remains to be seen,” said economist Florian Hense at Berenberg bank. “Draghi will want to make the point that, despite some differences, the Governing Council members agree on many points.”

Public criticism from the council minority can undermine market confidence that the central bank has the resolve to see its efforts through, or to add new ones if circumstances demand.

The eurozone economy is slowing amid uncertainty over the United States (US)-China trade dispute and the terms of Britain’s eventual departure from the European Union (EU). Despite massive stimulus over the past several years, inflation of 0.8 per cent annually remains stubbornly below the bank’s target of just under two per cent considered best for the economy.