Departing Draghi looks to bind wounds at ECB

Frankfurt am Main (AFP) –


At his final press conference Thursday, departing European Central Bank president Mario Draghi will downplay differences among policymakers over September's big-bang stimulus package, hoping to limit their impact on the institution's effectiveness, analysts predict.

While he is widely credited with saving the euro, critics inside and outside the ECB have since last month launched a rarely seen barrage of criticism against the Italian economist.

"The only disturbing factor of Draghi's farewell party is the ongoing 'war of the roses'," ING economist Carsten Brzeski said, predicting "therapeutical moments" around the governing council table.

Florian Hense of Berenberg bank said Draghi would highlight that "despite some differences, the governing council members agree on many points."

The pressure to bind lingering wounds will be high, as AFP learned incoming chief Christine Lagarde will attend the last meeting before she takes office on November 1 as an observer.

Some analysts have warned that last month's eruption of infighting has weakened the weight of the ECB's words on financial markets.

In September, ECB further lowered its interest rate on banks' deposits into negative territory, at -0.5 percent, and loosened conditions on a new round of cheap credit to lenders.

Most controversially, it again fired up "quantitative easing" (QE) bond-buying purchases to the tune of 20 billion euros ($22.4 billion) per month from next month, less than a year after setting them to idle last December.

Central bank governors from core eurozone economies like France, Germany and the Netherlands all criticised the move, while a German ECB board member resigned.

- Super Mario -

September looked like the last encore for a solo artist who repeatedly succeeded in bending the ECB to his will.

Since taking the reins in 2011, Draghi has been credited above all with saving the euro during its existential debt crisis.

That rescue came only with help from hefty cash injections -- including 2.6 trillion euros ($2.9 trillion) of QE -- and record low interest rates.

Both earned him the ire of conservatives, especially in Germany, who say he has harmed savers.

As he departs after five years of recovery and 11 million jobs created, Draghi leaves former French finance minister and International Monetary Fund (IMF) chief Lagarde to confront a eurozone apparently running out of steam.

Last week, the IMF forecast eurozone economic growth of just 1.2 percent this year and 1.4 percent in 2020.

And present inflation is far from the ECB's target of just below two percent, fuelling debate on whether the institution should revise the goal altogether.

- Lingering threats -

An official account of September's governing council meeting showed broad agreement on the need for further supportive steps, as the ECB's own forecasts showed inflation falling short of its goal out to 2021.

Meanwhile US trade confrontations with the European Union and China show no sign of letting up and other foreign sources of uncertainty like Brexit persist.

"Draghi's final gift as ECB president will have been to pass on to his successor, Ms Lagarde, a hefty yet extremely flexible package of policy measures" to tackle such headwinds, said Chiara Zangarelli of Nomura bank.

However, Lagarde "will have to adjust this complex package to economic conditions as it sees fit in a way that deals with low inflation, declining inflation expectations and a divided Council" all at once, she added.

Meanwhile, as the growth outlook has ebbed, the ECB has intensified its calls for governments to loosen their purse strings.

Lagarde is likely to persist in urging capitals to do more to boost growth and inflation, echoing her IMF role.

"The ECB is rightly worried about the balance between monetary and fiscal policy" after years fighting its inflation battle almost alone, economist Christian Odendahl of the Centre for European Reform told AFP.

Last month, German Chancellor Angela Merkel said governments shouldn't "overstretch" monetary policy in an apparent recognition of the ECB's woes.

And Germany's nomination Wednesday of Isabel Schnabel, an economist who has often defended the ECB against critics, to replace Sabine Lautenschlaeger is widely seen as an olive branch from Berlin.