Trichet Backs Draghi as QE Spat Becomes Battle Over ECB Legacy

Craig Stirling

15 Oct 2019, 03:03 PM IST

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Jean-Claude Trichet rejoined the fray in support of his successor as European Central Bank chief, extending weeks of controversy that have rocked the Frankfurt institution.

Recent criticisms by six former senior policy makers of the loose monetary policy pursued under President Mario Draghi are unwarranted, he wrote in an article in Monday’s edition of the Financial Times. Trichet led the ECB for the eight years through 2011.

“I disagree with their criticisms,” he wrote. “Where they see only negatives, I see success, continuity, unprecedented challenges and a question about the limitations of monetary policy.”

Trichet Backs Draghi as QE Spat Becomes Battle Over ECB Legacy

Trichet is the most senior former official to speak out in a dispute that shows no signs of abating. What began a month ago as a spat sparked by Draghi’s insistence on another round of quantitative easing against opposition from central bank governors in the euro area’s core is now becoming a wider argument over the legacy of loose policy he is bequeathing at the end of his term.

“The view was that the attempt to inject even more liquidity isn’t good, even counterproductive,” Austrian governor Robert Holzmann, one of the dissenters and an early protagonist in the public argument over QE, told Austrian public TV broadcaster ORF on Sunday. “Several governors didn’t consider this proposal the right policy for the purpose.”

Naming Names

The raging controversy looks likely to be one of the most urgent fires for Christine Lagarde to extinguish when she takes on the ECB presidency in less than three weeks.

One way she might do that would be to allow the views and names of dissenting governors to be identified in the public accounts of decisions, which are typically published four weeks after each meeting. Holzmann called for that in the wake of the rift at the Sept. 12 meeting, and former Chief Economist Peter Praet did so in an interview with Les Echos published on Monday, suggesting that it would discourage officials from disclosing details of internal discussions.

“One of the things that shocked me the most in recent years is the amount of information that leaked,” he said. “This kind of conduct breaks a golden rule of central banking, that the preparation of monetary policy decisions should remain confidential.”

Praet said that the release of a statement by a national central bank chief to criticize an ECB decision seemed totally “inappropriate.” Dutch Governor Klaas Knot, who was strongly against the QE move, did so on Sept. 13.

The spat widened in scope on Oct. 4 when two predecessors to Praet as chief economist -- Otmar Issing and Juergen Stark -- along with some former central bank governors, released a memorandum criticizing the extended ultra-loose setting of monetary policy cemented at the September decision. Praet then spoke out against them in a precursor to his comments released on Monday.

That memorandum provoked Trichet, who had said immediately after the ECB’s decision that broadsides on Draghi by some newspapers were unacceptable. He reiterated his view that the real criticism should be aimed at euro-zone governments who have failed to reform their economies and or loosen fiscal policy to help shore up growth.

“Attacks on the ECB’s monetary policy are misguided,” he said. “The energy would be better spent calling on European Union institutions, national governments, parliaments and social partners to fulfil their obligations.”