Draghi Goes Head-to-Head With German Critics of ECB Policyby
Merkel bloc lawmakers to challenge ECB chief on negative rates
Invite to explain central bank’s stance is first since 2012
Mario Draghi is facing some of his prominent German opponents as lawmakers in Berlin get a rare chance to press him for an eventual end to record-low interest rates in the euro area.
Four years after the European Central Bank’s president last met German lower-house members, dissatisfaction about the ECB’s asset-buying program and rate policies runs deep, particularly among Chancellor Angela Merkel’s lawmakers. They’ll have 90 minutes to spar with Draghi in closed session on Wednesday, including over his insistence that Germany’s budget surplus means it has fiscal leeway to boost demand.
“We’ll put a range of critical questions to him,” Eckhardt Rehberg, a budget-committee lawmaker from Merkel’s Christian Democratic Union, said in an e-mail. “I’m not sure that the bond-buying program has the proper balance of risk and reward.” Meantime, low rates lessen the incentive for economic overhauls in other euro-area countries, Rehberg said.
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German policy makers have been among Draghi’s biggest detractors since the debt crisis and sluggish growth triggered extraordinary measures, including the asset-purchase program designed to lift euro-area inflation. The meeting also gives German lawmakers a chance to quiz the ECB head about the state of Europe’s banks, including the troubles at Deutsche Bank AG, Germany’s biggest lender and Europe’s largest investment bank.
Draghi argues that the central bank’s 1.7 trillion-euro ($1.9 trillion) bond-buying program is needed to revive inflation. He told the European Parliament on Monday that the ECB “will preserve the very substantial amount of monetary support” and said there’s evidence that quantitative easing is helping the real economy.
The ECB chief will probably struggle to persuade Hans Michelbach, a lawmaker for Merkel’s Bavarian allies.
“We don’t see that this policy has been successful in any way, either on budget deficits or on economic growth,” Michelbach said in an interview. “We want clear answers on what monetary policy has achieved, apart from an expansion of joint liability in the euro zone.”
German banks are also using Draghi’s visit to press their case for boosting historically low rates, which Germany’s financial and political leaders say are harming savers. “It’s time to begin the exit from the ultra-loose monetary policy,” Andreas Martin, a board member of the BVR lobby for cooperative banks, said in a statement.
Negative interest rates for the 19 euro-area nations are adding to dissatisfaction among members of Merkel’s party, whose loyalty is already strained by euro-area bailouts and last year’s record influx of refugees to Germany.
Finance Minister Wolfgang Schaeuble, the most prominent member of Merkel’s government to question ECB policies, has also criticized the impact of low rates and suggested that Draghi shares the blame for the rise of the populist Alternative for Germany party. Schaeuble told lawmakers in the lower house, or Bundestag, to push Draghi to defend the ECB’s policies, Bild newspaper reported last week.
“Of course the ECB isn’t solely responsible for the low interest rates,” Rehberg said. “Still, I believe it’s urgent for the ECB to examine all options for a more restrictive monetary policy.”
For euro-area interest rates to rise “safely away from the lower bound,” structural reforms are needed to boost the economy’s growth potential, Draghi said at a conference in Frankfurt on Wednesday. Governments need to come up with “more robust policy prescriptions on the optimal composition of fiscal policy to promote growth,” he said.
Draghi is expected to discuss his policies in a prepared statement to the roomful of lawmakers from Germany’s budget, finance and European affairs committees. It’s part of a renewed push to explain the rationale for the ECB’s stance in Berlin, including a visit by Francois Villeroy de Galhau, the German-speaking governor of the Bank of France, and a meeting between Draghi and Merkel at the federal chancellery in January.
The last time German parliamentarians invited Draghi in October 2012, he defended his plan to buy government bonds known as Outright Monetary Transactions, the centerpiece of his “whatever it takes” pledge that summer to preserve the euro. Germany’s highest court dismissed challenges against the never-used OMT program in June -- and Draghi also has his defenders in the German parliament.
“Without Draghi’s monetary policy there wouldn’t be a euro zone anymore,” said Axel Schaefer, a lawmaker for the Social Democrats, Merkel’s junior coalition partner. “That’s something to be considered.”