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Draghi Era at ECB Ended With Rallying Call for Unity on Policy

Draghi Era at ECB Ended With Rallying Call for Unity on Policy

(Bloomberg) --

Mario Draghi’s tenure as European Central Bank president ended with an impassioned plea that policy makers stop airing differences in public and display a united front in the fight to revive inflation.

The Governing Council’s final meeting before the advent of Christine Lagarde proved an occasion for officials to restate their resolve in achieving the price stability that has eluded them for much of the past decade, according to an account of the Oct. 23-24 gathering released on Thursday in Frankfurt.

Draghi Era at ECB Ended With Rallying Call for Unity on Policy

The ECB had been left reeling from an unprecedented row after Draghi insisted on resuming of quantitative easing against the wishes of governors from major economies. The account of the October meeting, which by convention doesn’t identify who argued what on policy, shows how the institution’s leadership sought to come to terms with the fallout from that public dispute.

“Looking ahead, a strong call was made for unity of the Governing Council,” the ECB said. “While it was underlined that open and frank discussions in the Governing Council were absolutely necessary and legitimate, it was regarded as important to form a consensus and to unite behind the Governing Council’s commitment to pursuing its inflation aim.”

Lagarde, who replaced Draghi on Nov. 1, sought to mend bridges by taking her Governing Council colleagues on a retreat to a luxury hotel this month to discuss how they will work together. She is due to deliver a speech in Frankfurt on Friday in what may be her first official remarks on monetary policy. Her first press conference is on Dec. 12.

Those comments could potentially build on an attempt by the ECB leadership to give a statement of intent about the use of further monetary easing in future if needed.

“Strong commitment by the Governing Council to providing the necessary policy stimulus was seen as important to ensure the sustained convergence of inflation,” according to the October account. “It was vital for the Governing Council to remain prepared to act by using its full set of instruments.”

At that meeting, there was also a plea “for patience” to allow current easing to work, supporting a “wait and see” approach.

The ECB’s bid to signal a more galvanized resolve about the use of monetary tools in future contrasts with comments since the decision by a number of policy makers, who signaled they see little room to go beyond the current stimulus package.

Economic Assessment

France’s Francois Villeroy de Galhau suggested last week that interest rates are unlikely to fall much further. His Dutch colleague, Klaas Knot, argued the ECB should be more cautious with unconventional policy tools like QE. Both men had opposed the decision to resume bond purchases.

The ECB’s view at the October meeting was that the latest economic data remained downbeat, suggesting weakness “was likely to persist,” a scenario potentially worse than they forecast in September.

Data since then have signaled some stabilization. The euro-area economy grew a little faster than expected in the third quarter, while Germany avoided a recession.

At the October meeting, policy makers also agreed that possible side effects of their easing should be monitored, a message reinforced by the ECB’s own Financial Stability Review. Vice-President Luis de Guindos, presenting that assessment on Wednesday, said that those impacts from loose monetary policy are becoming more tangible, adding it is is encouraging excessive risk-taking.

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Craig Stirling

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