Tuesday 25 October 2016

Europe waits: what will Mario Draghi do next?

Jonathan Cable

Published 18/04/2016 | 02:30

Mario Draghi
Mario Draghi

Mario Draghi's latest recipe for tackling the economic crisis is likely to dominate the debate in the coming week, when he outlines the ECB's thinking following Thursday's meeting, at which no further policy changes are expected.

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Last month, the European Central Bank unleashed a volley of interest rate cuts, additional monthly bond purchases and more cheap loans to banks. This time - particularly following vocal complaints from German politicians about ultra-low rates creating a "gaping hole" in savers' finances and pensioners' retirement plans - focus will be on President Draghi's words at the news conference.

"Draghi will respond to German politicians' recent criticism of the ECB's ultra-loose policy at the meeting on 21st April by reiterating the Bank's independence and stressing that more support is still possible," said Jennifer McKeown at Capital Economics.

"In the meantime, President Draghi will keep pressing governments for growth-boosting reforms."

Other central banks in Japan, Sweden and Switzerland have also adopted negative interest rates, but with global growth and inflation losing momentum - despite years of ultra-loose policy - now might be the time for a shift of emphasis towards fiscal expansion.

Some 86pc of economists polled around the globe by Reuters in the past week said yes when asked if major developed economies should now use fiscal policy to add stimulus, as Canada has done, rather than even more aggressive monetary easing.

Angela Merkel also weighed into the debate on Wednesday, pressing Europe's governments to do more to generate growth that she said would help push up inflation.

Irish Independent

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