The European Central Bank president has launched a robust defence of the institution’s independence after criticism from Germany that rock-bottom euro interest rates are hurting savers and fuelling rightwing nationalism.
Mario Draghi used his latest press conference on Thursday to counter an attack from Germany’s finance minister, Wolfgang Schäuble, who had said record low rates were causing “extraordinary problems” for German banks and pensioners and risked fuelling the rise of Eurosceptics in Germany.
After leaving eurozone interest rates at zero at the ECB’s latest meeting, Draghi sought to stress loose policy was needed to get inflation back to the central bank’s target of “below but close to” 2%. For now inflation remains well short of that and could turn negative again in coming months, he added.
Draghi warned that those who threatened ECB independence with “criticisms of a certain type” were making Europe’s economic problems worse.
“We have a mandate to pursue price stability for the whole of the eurozone not only for Germany,” he said. “We obey the law, not the politicians, because we are independent as stated by the law.”
Angela Merkel countered that it was legitimate for Germans to discuss how far interest rates had fallen, but “that shouldn’t be confused with interference in the independent policy of the ECB, which I support.
“The ECB is independent in its policies,” the German chancellor told reporters while on a visit to the Netherlands.
At Thursday’s ECB news conference in Frankfurt Draghi said a range of initiatives announced in March would need time to bear fruit but he insisted the bank’s stance was working. In last month’s unprecedented package of growth-bolstering measures, the ECB cut interest rates to an all-time low, expanded its money-printing programme and reduced a key bank deposit rate further into negative territory.
There had been some speculation in financial markets before Thursday that faced with global uncertainties and an ongoing threat of deflation, the ECB could cut rates further still and launch “helicopter money” – whereby central banks print money so finance ministries can hand it out to citizens to spend.
But Draghi was swift to snuff out speculation and said the ECB had not discussed helicopter money. He did emphasise, however, that borrowing costs would stay low and he hinted they could possibly be cut even further.
“We continue to expect them to remain at present or lower levels for an extended period of time,” the ECB chief said in his opening statement to the press conference.
That outlook will infuriate many German savers, frustrated by years of low returns on their pension pots. But Draghi rejected implications that the ECB was responsible for all the problems of pension funds.
“It is clear that pension funds and others, insurance companies, are seriously affected by the low interest rates. I would caution them not to blame on low rates everything that has gone wrong in the sector,” he said.
Draghi also renewed the pressure on governments to play a role in shoring up growth in the eurozone, echoing recent comments by the International Monetary Fund’s Christine Lagarde that central banks alone cannot fuel the recovery.
“Low interest rates are a symptom of low growth and low inflation. If we want to return to higher interest rates we need to return to higher growth and higher inflation,” he said.
Asked about the UK’s June referendum on EU membership, Draghi said: “The participation of Britain in the EU is welcome,. As for the risk of [Brexit] affecting the stability of the eurozone, the assessment our staff is that the effect will be limited.”