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Hawkish Former ECB Officials Lambast Draghi’s Monetary Policy

Hawkish Former ECB Officials Lambast Draghi’s Monetary Policy

(Bloomberg) --

European Central Bank President Mario Draghi’s latest monetary-stimulus initiative was lambasted by a group of former policy makers criticizing the institution’s stance and its approach to its inflation goal.

“As former central bankers and as European citizens, we are witnessing the ECB’s ongoing crisis mode with growing concern,” officials including prior chief economists Otmar Issing and Juergen Stark wrote in a memorandum published Friday. “Interest rates have lost their steering function and financial stability risks have increased. The longer the ultra-low or negative interest rate policy and liquidity flooding of markets continue, the greater the potential for a setback.”

Signatories of the document also include former policy makers from France, Austria and the Netherlands, who held predominantly hawkish views during their time in office.

They raised a range of concerns including a mistaken diagnosis and approach to complying with their price-stability mandate, the adverse effect of negative interest rates on the entire financial sector and the financing of governments through asset purchases.

“The suspicion that behind this measure lies an intent to protect heavily indebted governments from a rise in interest rates is becoming increasingly well founded,” the officials wrote. “From an economic point of view, the ECB has already entered the territory of monetary financing of government spending, which is strictly prohibited.”

They also blasted a new round of long-term loans that started last month, saying together with low rates it keeps weak banks and companies afloat, encouraging a “zombification” of the economy.

The memorandum was signed by the following people. Their judgment was shared by Jacques de Larosiere, a former governor of the Bank of France.

  • Herve Hannoun, former first deputy governor of the Bank of France
  • Otmar Issing, former chief economist at the ECB
  • Klaus Liebscher, former governor of the Austrian central bank
  • Helmut Schlesinger, former president of Germany‘s Bundesbank
  • Juergen Stark, former chief economist at the ECB
  • Nout Wellink, former governor of the Dutch central bank

To contact the reporter on this story: Yuko Takeo in Frankfurt at ytakeo2@bloomberg.net

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

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