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Mario Draghi’s term as ECB President is about to end. How will he be remembered?
His mandate was marked by the debt crisis, three country bailouts, the extreme situations in Spain and Italy, and the real prospect of Greece being forced to leave the euro area. With one sentence he made it patently clear that he would preserve the single currency, thus marking the beginning of the recovery from 2013 onwards. The second standout moment is large-scale asset purchases. Despite the challenges of ECB decision-making, he built a consensus for implementing a policy that at the time was strictly necessary. In so doing, he modernised the ECB’s toolkit, bringing the institution into line with the Federal Reserve and the Bank of England.
His latest measures have been heavily criticised. Draghi himself has acknowledged that the side effects are increasing. Isn’t it a contradiction to say that the ECB has room to act while, at the same time, warning of the adverse effects of its policies?
You have to find the right balance. We try to take action and do our part, but the side effects are becoming increasingly clear over time. Central bankers are not almighty. We cannot fix problems such as trade wars or Brexit. Fiscal policy, structural reforms and the banking union have their part to play. If they don’t, the side effects will be larger. And that’s what we want to avoid.
The ECB has not met its inflation objective since 2013. Has it failed to fulfil its price stability mandate?
Let’s not forget that the risk of deflation was averted, and that risk was extremely dangerous. Inflation has indeed been below the objective for some time, but behind this there are structural changes for which we don’t yet have a full explanation.
What is Christine Lagarde’s biggest challenge?
On the one hand, the severity of the economic slowdown. We expect growth to be slightly above 1%, but with downside risks. In the financial sector, the greatest challenges are banks’ very low profitability, risks stemming from low rates and the assets managed by the funds industry, which have grown considerably.
The ECB’s policies have had the undesired effect of redistributing income.
They have had a certain negative effect on savers and have potentially pushed up asset prices, but they have also had a positive effect in the form of economic growth, job creation and wage increases. According to our calculations, the net effect has added 2 percentage points to growth. As a result of the ECB’s actions, the situation in Europe is nothing like it was ten years ago.
There has been criticism of the ECB becoming more political and less technical with Christine Lagarde and you at the helm – both of you are former ministers with no central banking experience.
Monetary policy must be just another element that has a place within economic policy. It’s good to have experience in other areas. Central bankers have sometimes been working in an ivory tower. Christine Lagarde – not to mention myself –is well versed in the euro area’s mechanisms. The ECB’s decision-makers need to understand the context, make sound choices from among the alternatives and communicate appropriately. Ms Lagarde will do this extremely clearly.