Saturday 20 January 2018

Draghi must end German ECB influence

If the ECB was a private-sector organisation, serious questions would now be being asked about its performance after last week's interest-rate U-turn.

Having raised interest rates twice this year, the ECB conceded on Thursday that, contrary to what it had previously indicated, there would be no further interest-rate increases.

Instead, there is likely to be an interest-rate reduction later this year, followed by further rate cuts in the New Year.

As in 2008, the ECB bowed to Germany's anti-inflation fetish and raised interest rates at exactly the wrong time. While to get it wrong once could be considered unfortunate, making the same blunder twice in the space of just three years is unforgivable. If he weren't retiring next month, the actions of ECB president Jean-Claude Trichet would be coming under very close scrutiny.

When the new ECB president, Italian Mario Draghi, takes over at the controls next month, he must move quickly to dilute the pro-German bias in the ECB's decision-making processes. At present, as well as the 17 heads of the national central banks, all six members of its executive board also sit on the ECB council, which sets eurozone interest rates.

This means that a cabal of Germany, the Benelux, Austria and Finland can, along with the executive board, overrule the wishes of the other 11 eurozone countries.

With the European economy on the verge of tipping into a double-dip recession, Draghi must find a way of making the ECB council more responsive to the needs of all member countries. If he fails, neither the ECB nor the euro will survive for much longer in their current form.

Sunday Indo Business

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