In a speech to Wall Street investors, the president of the European Central Bank (ECB), Mario Draghi, reinforced his promise to do all in his power to push Europe’s stagnating economy toward a full recovery.
The address, with its bold language and clearly stated goals, seemed to be an attempt by Draghi — who, perhaps more than any central banker alive, relies on the power of his words to move markets — to respond to the disappointing market reaction after the latest stimulus measures he announced on Thursday.
Draghi said there was “no particular limit to how we can deploy any of our tools” in terms of what the central bank could do to foster demand and, crucially, fulfill its stated goal of lifting inflation to two per cent. He emphasised, as well, the stimulative effect of the decision to extend the bank’s program of purchasing about euro 60 billion worth of bonds a month to March 2017 (or beyond) and to reinvest the principal from these securities.
That would mean that 680 billion euros in extra cash — about 6.5 per cent of overall output in the eurozone — would be pumped into European capital markets by 2019, he reminded investors.
In that regard, Draghi’s remarks were reminiscent of a speech he delivered in London in July 2012 — also to a room full of investors — when he said that the bank was “ready to do whatever it takes to preserve the euro.”
Those words gave people the confidence to plunge back into the market and buy European government bonds in bulk, and they underscored the extent to which Draghi was willing to take his message directly to investors when he sensed that his monthly news conferences were not doing the trick.
This time, however, the situation is different. Unlike in 2012, there is no existential threat to the euro. But after more than a year of stimulus from Draghi and just the faintest glimmer of an economic recovery, the markets were expecting another powerful jolt from “Super Mario,” as he is known on trading desks throughout the world.
On a panel that followed his talk, the former governor of the Bank of England, Mervyn King, cited those famous words when he asked Draghi why the markets had not responded to his latest suite of policy actions. Draghi is the coolest of customers when he is on the public stage, rarely showing emotion in terms of how the markets respond to what he says and does.
But this time, he seemed just a little defensive in his response. Draghi said he had read what his critics were saying and disagreed with their analysis that he was holding back on more aggressive moves for some reason — perhaps because of opposition from Germany, which has long resisted so-called quantitative easing.
“Like central banks everywhere, we have those that dissent,” Draghi said. “But the bottom line is that QE is here to stay.”
Then, in case there was any room for doubt, Draghi said that the European Central Bank had “the power to act and the determination to act and the commitment to act.”
On the panel, Draghi also took the opportunity to respond to critics — primarily in Germany — who contend that his extra-easy policies, and the sharp drop in government borrowing rates they have precipitated, have caused European governments to backtrack on their reform commitments.
“Low interest rates have no correlation to governments not willing to make reforms,” Draghi said. Does a government, he asked, decide to not go forward with a plan to overhaul its pension or health sector just because rates are low?
“I don’t think so,” he opined.
He pointed out, too, that countries like Spain and Italy have pushed forward politically difficult labor market reforms at the same time that interest rates remained low.
Draghi did his best to make clear that governments needed to do more in terms of improving their tax policies and regulatory climates for business if a true recovery was to take shape in Europe.
“Monetary policies cannot achieve everything,” he said.
The address, with its bold language and clearly stated goals, seemed to be an attempt by Draghi — who, perhaps more than any central banker alive, relies on the power of his words to move markets — to respond to the disappointing market reaction after the latest stimulus measures he announced on Thursday.
Draghi said there was “no particular limit to how we can deploy any of our tools” in terms of what the central bank could do to foster demand and, crucially, fulfill its stated goal of lifting inflation to two per cent. He emphasised, as well, the stimulative effect of the decision to extend the bank’s program of purchasing about euro 60 billion worth of bonds a month to March 2017 (or beyond) and to reinvest the principal from these securities.
That would mean that 680 billion euros in extra cash — about 6.5 per cent of overall output in the eurozone — would be pumped into European capital markets by 2019, he reminded investors.
In that regard, Draghi’s remarks were reminiscent of a speech he delivered in London in July 2012 — also to a room full of investors — when he said that the bank was “ready to do whatever it takes to preserve the euro.”
Those words gave people the confidence to plunge back into the market and buy European government bonds in bulk, and they underscored the extent to which Draghi was willing to take his message directly to investors when he sensed that his monthly news conferences were not doing the trick.
This time, however, the situation is different. Unlike in 2012, there is no existential threat to the euro. But after more than a year of stimulus from Draghi and just the faintest glimmer of an economic recovery, the markets were expecting another powerful jolt from “Super Mario,” as he is known on trading desks throughout the world.
On a panel that followed his talk, the former governor of the Bank of England, Mervyn King, cited those famous words when he asked Draghi why the markets had not responded to his latest suite of policy actions. Draghi is the coolest of customers when he is on the public stage, rarely showing emotion in terms of how the markets respond to what he says and does.
But this time, he seemed just a little defensive in his response. Draghi said he had read what his critics were saying and disagreed with their analysis that he was holding back on more aggressive moves for some reason — perhaps because of opposition from Germany, which has long resisted so-called quantitative easing.
“Like central banks everywhere, we have those that dissent,” Draghi said. “But the bottom line is that QE is here to stay.”
Then, in case there was any room for doubt, Draghi said that the European Central Bank had “the power to act and the determination to act and the commitment to act.”
On the panel, Draghi also took the opportunity to respond to critics — primarily in Germany — who contend that his extra-easy policies, and the sharp drop in government borrowing rates they have precipitated, have caused European governments to backtrack on their reform commitments.
“Low interest rates have no correlation to governments not willing to make reforms,” Draghi said. Does a government, he asked, decide to not go forward with a plan to overhaul its pension or health sector just because rates are low?
“I don’t think so,” he opined.
He pointed out, too, that countries like Spain and Italy have pushed forward politically difficult labor market reforms at the same time that interest rates remained low.
Draghi did his best to make clear that governments needed to do more in terms of improving their tax policies and regulatory climates for business if a true recovery was to take shape in Europe.
“Monetary policies cannot achieve everything,” he said.
©2015 The New York Times News Service