Draghi faces Bundestag wrath on ECB stance

Posted on September 28, 2016

European Central Bank President Mario Draghi addresses the Committee on Economic and Monetary Affairs (ECON) during a hearing on monetary dialogue, at the European Parliament in Brussels, on September 26, 2016. / AFP PHOTO / EMMANUEL DUNANDEMMANUEL DUNAND/AFP/Getty Images©AFP

Mario Draghi, the president of the European Central Bank, faced a wave of criticism from German politicians on Wednesday after he struggled to convince them that his policies were healing the eurozone’s economy.

Mr Draghi defended the ECB’s actions at a hearing at the Bundestag, saying there were winners and losers from policies that have proved deeply unpopular in the eurozone’s largest economy.

    Hans Michelbach, a lawmaker for the conservative Christian Social Union, sister party of Chancellor Angela Merkel’s Christian Democrats, who was in the closed-door hearing with Mr Draghi, said he was “unsatisfied by the meeting”.

    “We are not reaching our goal of increasing trust in the ECB and its monetary policy,” Mr Michelbach said, adding that the ECB’s view that economic conditions were improving was “not credible”.

    Florian Hahn, of the CSU, said: “The measures the ECB has taken are good for the eurozone as a whole but not for Germany. And that’s what we as politicians have to explain to our voters.”

    Mr Draghi said afterwards that he “cherished these occasions for debate”.

    “It forces us to think about our views, without changing them of course,” he said at a press conference after the hearing. Some of the 50 or so politicians in attendance seemed equally unmoved.

    One official who attended the meeting reported a clear divide between Ms Merkel’s Christian Democratic Union and CSU and the centre-left Social Democratic party and Greens, which were more sympathetic to the ECB president. The atmosphere was not confrontational, the official said.

    Carsten Schneider, a member of the SPD, said: “The more that Draghi’s policies are attacked by German politicians, the more the ECB has to do, the more it has to intervene in the eurozone economy to prevent deflation and restore its credibility.”

    While Mr Draghi has been widely credited with staving off the eurozone’s collapse since his last appearance at the German parliament in 2012, he faced a rough ride from politicians who have frequently accused the ECB president of expropriating German savings and fuelling the rise of far-right nationalism.

    Mr Draghi said he was “thankful of the praise the ECB action has received and the respect of its independence”.

    His central bank has deployed negative interest rates and large-scale asset purchases in its attempts to boost inflation and growth in a currency area that has lacked both. It’s main interest rate is now a record low of zero and it also imposes a minus 0.4 per cent deposit rate on a portion of banks’ reserves parked at the central bank.

    The ECB president said in prepared remarks at the start of the hearing: “What a household may lose in terms of little interest on their bank account, it might save in lower mortgage payments for their home.” He added that households had gained a lot more than they had lots on low interest rates between 2008 and 2015, saying the cost of interest payments on debt had fallen more sharply than interest rates on savings.

    “I still think his policy is wrong because all the small-time savers suffer while owners of assets just keep getting richer,” said Alexander Ulrich, an MP of the hard-left Die Linke party, who attended the meeting.

    Mr Draghi also repeated his view that his central bank is not responsible for the problems of the eurozone’s banks, saying overcapacity — and the high costs stemming from this competition — were behind low levels of profitability.

    As well as questions on savers and pension funds, he was pressed on when the ECB would begin to exit its ultra-loose policies and begin to raise rates.

    Mr Michelbach of the CSU said there were ”no enlightening responses” to the question of when the ECB would stop buying assets under its quantitative easing policy. The central bank is now purchasing €80bn-worth of mostly government bonds a month. It plans to do so until at least March 2017.

    “The ECB’s government bond purchases are effectively bailouts, but we never voted for them,” Mr Michelbach said. “For me as a democrat, that raises serious concerns.”

    Mr Hahn said: “We asked Mr Draghi what he’d like for Christmas. He said he’d like to be in a position where he could change the bank’s interest rate policy [and start raising rates] but said in order to do that you need stability, convergence and trust.”

    He added: “That’s his wish for Christmas — but he didn’t say which one.”

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