ECB Resistance to Draghi’s Final Push Augurs Warning for Lagarde

ECB Resistance to Draghi's Final Push Augurs Warning for Lagarde

11 Sep 2019, 07:01 AM IST

(Bloomberg) --

Christine Lagarde may this week get a sense of things to come under her presidency of the European Central Bank, as her forerunner in the role encounters resistance to the final stimulus push of his tenure.

Policy makers skeptical of the need for quantitative easing appear to be emboldened by Mario Draghi’s impending exit and the advent of Lagarde in November, according to euro-zone central bank officials with knowledge of the deliberations.

While no one doubts the sincerity of those who argue QE isn’t needed right now, the dissenters also seem motivated by frustration at Draghi’s recent tactics in nudging the institution toward an ambitious package of measures, the officials said, asking not to be identified as such discussions are private. Those governors may be grasping the opportunity to send a signal that the Governing Council’s opinions deserve greater respect.

ECB Resistance to Draghi’s Final Push Augurs Warning for Lagarde

The ECB’s Executive Board meets on Tuesday to discuss policy options for this week’s meeting. The current mood could mean that Draghi’s penultimate monetary-policy gathering -- his 76th as president -- is the last chance for governors to take a stand, after eight years in which he scored repeated successes in browbeating the council to follow his cue.

Seeking Consensus

The Italian’s style has been in marked contrast to the more collegiate, consensus-based approach of his predecessor, Jean-Claude Trichet. Draghi has had a track record of presenting often contentious decisions outside of policy meetings and only seeking the support of the Governing Council later. His most famous announcement -- the pledge to do whatever it takes to save the euro in July 2012 -- was added into a speech in London and took even his closest confidants by surprise.

Two years later at a Federal Reserve symposium in Jackson Hole, Wyoming, he put the central banks on course for the launch of QE. While he still faced stiff opposition when it was announced in January 2015, he got it through.

What Bloomberg’s Economists Say...
“Draghi’s views -- along with those of the ECB chief economist -- tend to be the best guide to the meeting outcome. We still expect fresh asset purchases to be announced this week.”
-- David Powell and Maeva Cousin. Read the ECB INSIGHT

It’s tempting to dismiss the current pushback as coming from the usual camp of monetary hawks. As in 2015, German, Dutch, Austrian and Estonian officials are leading the charge. But this time the opposition is sizable enough to cast some doubt on the likelihood of a large package of stimulus measures.

The Governing Council rarely votes on major policy decisions, striving instead for unanimity or broad consensus -- a point that Slovakian Governor Peter Kazimir said last month is critical for credibility. That may be hard to do when policy makers from countries representing half of the euro-area economy are against QE.

One telltale sign of the shifting consensus is the skepticism from Bank of France Governor Francois Villeroy de Galhau, who signaled that a rate cut and guidance over the path of rates may be enough.