On October 24, the Financial Times reported that the President of the European Central Bank (ECB) Mario Draghi defended the bank’s bond-buying programme in front of sceptical German MPs in an attempt to convince them that the bond purchases approved by the ECB were unlikely to lead to rampant inflation.
Mario Draghi Briefs German MPs
Mr Draghi briefed the members of the Bundestag on the ECB’s bond-buying programme and answered their questions for almost two hours. He was arguing that the plan for the ECB’s Outright Monetary Transactions, announced in September, was not a form of state-financing for debt-ridden Eurozone countries. “First, OMTs will not lead to disguised financing of governments,” noted Mr Draghi in his opening statement at the Bundestag. Mr Draghi explained that the transactions would be performed solely on secondary markets, where already issued bonds are traded. “If interventions take place, they will involve buying government debt from investors, not from governments.”
Inflation Fears Unfounded
Among the key points in Mr Draghi’s speech was the issue of inflation, with fears of inflation being one of the main concerns associated with the central bank’s bond-buying programme. Mr Draghi said that the ECB’s operations were designed so that their impact on monetary conditions would be neutral. “For every euro we inject, we will withdraw a euro,” commented ECB’s President in his opening statement, adding that the bank saw no signs that the announcement had affected inflation expectations. “We have all the necessary tools at our disposal to maintain it and to withdraw any excess liquidity in case of upward risks to price stability.”
Southern European Prussian or Money-Forger?
While noting that it was rare for the ECB President to speak in a national parliament, Mr Draghi is not the first ECB President to appear in the German parliament. Reuters reports that in April 2010, Mr Draghi’s predecessor, Jean-Claude Trichet, along with Dominique Strauss-Kahn, the former chief of the International Monetary Fund, briefed German lawmakers on the first financial bailout for Greece. Yet, such speeches are considered a rarity, since the ECB is designed to be fully independent and its president is therefore not answerable to politicians.
Mr Draghi, however, had offered to address the Bundestag following fierce criticism of the open monetary transactions by German MPs. The FT reports that Alexander Dobrindt, a leading Bavarian conservative, had previously likened Mr Draghi to a “money-forger.” Frank Schäffler, another ECB critic, noted that he did not believe in MR Draghi’s promise that the bank would combat inflation. “It’s not enough to portray yourself as a[n inflation] hawk when you’re really just a dove under a hawk’s feathers,” pointed out Mr Schäffler, as quoted by the FT.
Mr Draghi’s Bundestag performance however managed to provoke some interesting comments on the positive side as well, with Mr Barthle hailing the ECB President as “a Prussian from southern Europe.”
Nevertheless, it would seem that the general agreement is that Mr Draghi adopted the right approach by offering an explanation of some of the ECB’s policies. Reuters quotes Guntram Wolff, deputy director of the Bruegel think-tank, as saying that one of the big EU problems was that European institutions were talking to voters only through national governments. “So it's important to have a direct link to the people, and this is a step in that direction,” noted Mr Wolff.