quarta-feira, 20 de abril de 2016
Why Draghi will try to mend fences with Germany
Why Draghi will try to mend fences with Germany
At the ECB’s latest monetary policy meeting, reviving inflation will be its main focus.
By PIERRE BRIANÇON 4/20/16, 6:28 PM CET Updated 4/20/16, 8:34 PM CET
PARIS — Ground the helicopters.
That’s likely to be Mario Draghi’s order of the day when the governing council of the European Central Bank meets on Thursday, shutting down the loose talk of “helicopter money” — or the idea of the central bank giving money directly to consumers and companies to jump-start spending.
What should have been a routine meeting after the ECB’s last one on March 10, when Draghi and his team rolled out a new round of monetary stimulus measures, will take place under the darkened cloud of German anger at the central bank’s unconventional policies.
But don’t expect ECB to fire back verbal shots at German Finance Minister Wolfgang Schäuble, who charged in a speech on April 8 that Draghi’s monetary policies are fueling the rise of far-right party Alternative for Germany (AfD).
Last week, Chancellor Angela Merkel tried to calm her minister down after reminding eurozone governments that they have to work to promote growth while the ECB was right to focus on meeting its inflation target. But Draghi knows he must do his part to achieve some form of truce, if only momentarily.
Draghi doesn’t have to reply to Schäuble directly, except to remind everyone of the principle of central bank independence. His long-standing opponent within the ECB — namely, Bundesbank President Jens Weidmann — has already come to his rescue by disagreeing publicly with his own finance minister.
“People are not just savers: they’re also employees, taxpayers, and debtors, as such benefiting from low interest rates,” he told the Financial Times last week.
That should allow the ECB president to extend some olive branches of his own. The first could be a firm squashing of the idea that “helicopter money” is even debated within the ECB.
In his March 10 press conference, Draghi deemed the rather radical concept dear to academics intellectually “interesting.” He has spent the weeks since then regretting the statement, according to an ECB source. Draghi didn’t expect media commentators and market analysts to debate the concept to death and how or when the ECB might do it.
It was natural that Weidmann would jump at the opportunity to criticize the concept. Helicopter money would “tear gaping holes in the ECB balance sheet,” he said. But in an interview with POLITICO, even the ECB’s “dovish” Executive Board Member Benoit Cœuré tried to squelch the notion, expressing his “skepticism and circumspection” at an idea that was “practically and legally problematic.”
To no avail, market and media speculation continued.
“Just talking about it was a red flag,” said Gilles Moec, a Europe economist at Bank of America Merril Lynch. “I think it was a mistake, and it may have triggered Schäuble’s anger.” Moec added that this was “the first time that criticism of the ECB got embroiled in electoral politics.”
One way for the ECB to soothe the worries of German politicians and savers on Thursday would be to insist on the fact that it is fully focused on the measures unveiled on March 10, a few of which haven’t yet been implemented. That’s the case with long-term lending operations to the eurozone banks and the extension of the asset-buying program to corporate bonds, where practical difficulties must still be addressed.
“The ECB faces an unusual combination of criticism compared to last year, when it was universally lauded,” Moec noted. Then, governments, asset managers and banks liked the role the ECB was playing to contribute to the eurozone recovery.
Now, with negative interest rates, governments have to listen to their savers and asset managers upset about measly returns and banks complaining about shrinking profits.
So expect Draghi to return to his key message: Reviving inflation is the name of the game, and we will stick to it.
The ECB’s governing council will reiterate that it has plenty of potential weapons in its arsenal, should the current policy fall short or economic headwinds get stronger. But of course, it will “not rule anything out” in the future (even helicopter money …) because that’s not what central banks do.
“They have to keep reminding people that they’re ready to do more if things don’t go according to plan,” said Frédéric Ducrozet, a senior economist at Pictet, the Swiss bank.
The ECB will also insist against nay-sayers that its anti-crisis policies designed to meet Draghi’s famous “whatever it takes” declaration in the summer of 2012 have worked. As Cœuré is fond of saying, about half the eurozone’s current growth can be attributed to monetary policy, while the other half stems from lower oil and commodity prices.
Indeed, no one has provided a picture of what the situation would be without the ECB’s action. Missing in action more glaringly, as Merkel herself admitted, have been eurozone governments which aren’t doing their part to boost economic growth.
Francesco Guerrera contributed to this article.