Draghi Urges Governments to Align With ECB to Boost Euro Economy

(Bloomberg) --

European Central Bank President Mario Draghi, battered by criticism over his latest round of extraordinary monetary stimulus, called for “alignment” between governments and central bankers to boost the economy.

“Central bank independence is not an end in itself,” the ECB chief said in a speech in Milan on Friday. It “does not preclude communication with governments when it is clear that mutually aligned policies would deliver a faster return to price stability.”

Draghi’s final days in office before his term ends on Oct. 31 have been marked by public dissent among Governing Council members over last month’s decision to launch yet another stimulus package. It’s the latest controversy in an eight-year term that included unprecedented measures such as bond purchases and negative interest rates that have stoked criticism in core nations such as Germany and the Netherlands.

The ECB’s response is that it has spent years urging economic reforms and has lately heightened calls for governments that can afford it -- such as Germany -- to spend more to help the euro zone out of its current slowdown. As he prepares to hand the presidency to Christine Lagarde, Draghi doubled down on that point.

“A more active fiscal policy in the euro area would thus make it possible to adjust our policies more quickly,” he said. “This is one of the reasons that interest rates in the U.S. have been able to rise sooner, while in the euro area they have been low or negative for a long time.”

In defense of his policies so far, the president acknowledged that they have had adverse effects on parts of society but argued that officials must have the courage to act when needed. Outright Monetary Transactions -- the crisis-busting bond-purchase plan that gave substance to his “whatever it takes” speech in 2012 -- was “inescapable,” he said.

“What gave us the courage to act was the conviction that there was a far greater risk if we did nothing,” he said. “Inaction would have meant nothing less than the failure of our mandate and, potentially, of the currency we had been tasked with preserving.”

During the Greek crisis of 2015, shutting off central-bank liquidity for the nation’s banks would have meant “triggering events of momentous political importance” -- the country’s exit from the single currency -- that fall within the remit of elected governments.

To contact the reporters on this story: Alessandro Speciale in Rome at aspeciale@bloomberg.net;Sonia Sirletti in Milan at ssirletti@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Paul Gordon, Jana Randow

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