(The Guardian, City AM) Draghi, who was in Washington on Thursday to deliver a lecture on monetary policy, received a rapturous welcome from Christine Lagarde, the managing director of the International Monetary Fund, who introduced him as “maestro” – the nickname once given to Federal Reserve chairman Alan Greenspan.
“Those who know you understand that you are a man of outstanding insight, fierce determination, and above all, courage. You can call a spade a spade without putting any of your cards on the table,” she said.
While skirting the thorny subject of Greece, which has repeatedly drawn on emergency funds from the ECB through its Emergency Liquidity Assistance scheme, Draghi issued a strong defence of the bank’s quantitative easing policy introduced ealier this year despite strong opposition by the German government.
He also stressed that the ECB expects to continue the €60bn a month bond-buying programme (from which Greece is excluded) for the forseeable future.
“After almost seven years of a debilitating sequence of crises, firms and households are very hesitant to take on economic risk. For this reason quite some time is needed before we can declare success, and our monetary policy stimulus will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis.”
However, as Draghi was spelling out the benefits of his approach, the scale of the opposition he faces within the ECB was laid bare, as his fellow governing council member, Jens Weidmann, the head of the Bundesbank, gave a strongly-worded interview condemning QE and questioning the support being offered to Greece.
Weidmann, also hit out at the ECB’s approach to Greece. The rules of the single currency prevent the central bank from directly bailing out member states, and many in Germany feel that by repeatedly increasing the ceiling for Emergency Liquidity Assistance to Athens, the ECB is breaking that rule.
“Given the ban on monetary financing of states, I don’t think it’s OK that banks which don’t have access to the markets are being granted loans which then finance the bonds of their government, which doesn’t have access to the markets itself,” he said, in an interview with German newspaper Handelsblatt.
The Greek government is being given unfair access to European finance via emergency bank funding, the Bundesbank’s chief said, taking the tough German line on Greece.
“The set-up strains European Central Bank rules”, Weidmann said.
“Given the ban on monetary financing of states, I don’t think it is OK that banks which don’t have access to the markets are being granted loans which then finance the bonds of their government, which doesn’t have access to the markets itself,” he added.
The Greek government managed to pay its latest €750m debt repayment to the International Monetary Fund this week, but only by borrowing from another facility with the institution.
With fraught talks continuing between Greek officials and the “Brussels Group” of creditors – the renamed “troika” of ECB, European commission and IMF – Greece’s hand may be strengthened by separate data showing that the government ran a primary budget surplus – excluding its debt repayments – in the first four months of the year.
Lagarde warned that monetary policy would not be enough to prevent the emergence of “the new mediocre”: a prolonged period of weak global growth. She called for structural reforms, continued fiscal consolidation, and a boost to women’s employment levels, to help kickstart recovery.
