Mario Draghi’s decision to restart the European Central Bank’s economic stimulus efforts has attracted fierce criticism and opened deep divisions in the institution’s top ranks.
Thursday’s announcement that the central bank would cut interest rates further into negative territory and restart its €2.6tn quantitative easing programme of bond-buying was greeted with outrage by those who argue that the measures penalised prudent savers while fuelling potential asset bubbles in housing, stock markets and bonds.
One German tabloid accused Mr Draghi of being “Count Draghila” who “sucks our bank accounts empty”. And, more significantly for the future of the bloc’s policymaking, there was resistance within the ECB governing council itself.
As many as nine of the 25 members of the council — the ECB’s main rate-setting body — spoke out against the package at Thursday’s meeting, one senior ECB official said.
Mr Draghi told reporters there was “a clear majority” in favour of the package. He added that “an ample degree of monetary accommodation” was necessary for “the continued sustained convergence of inflation to levels that are below, but close to, 2 per cent over the medium term”.
But on Friday one council member, Dutch central bank boss Klaas Knot, publicly criticised the policy as “disproportionate” and said he doubted its effectiveness. Open dissent is rare on the ECB board, which prefers consensus decision-making.
In a statement on the Dutch central bank website, Mr Knot said: “This broad package of measures, in particular restarting the [asset purchase programme], is disproportionate to the present economic conditions.”
When Austrian central bank governor Robert Holzmann — another council member — was asked on Friday whether the ECB had made a mistake, he told Bloomberg TV: “I’m sure this idea crossed the mind of some people and it definitely crossed my mind.”
German newspaper Bild Zeitung reflected the nation’s longstanding mistrust of Mr Draghi’s loose monetary policy — Bundesbank president Jens Weidmann is one of the most hawkish members of the ECB governing council — when it wrote that “the horror for German savers is continuing”.
Mr Weidmann himself told Bild Zeitung on Friday that he believed Mr Draghi had “overstepped the mark”, while promising to ensure there was no unnecessary delay in raising interest rates again.
He said: “The economic situation is not all that bad, wages are growing strongly, and the spectre of deflation – that is, of persistently contracting prices and wages – is nowhere to be seen.”
That view was reflected across the political spectrum in Germany.
Hans Michelbach, an MP in the centre-right CSU party who has long been critical of Mr Draghi’s policy, said: “The ECB is administering an even higher dose of the same medicine that didn’t work in the past.”
“[Cheap money and bond buying] only encourage speculation, a rejection of reforms and unsound fiscal policy,” he said. “But what we need to stimulate growth in the eurozone as a whole is structural reforms and an interest rate that is in line with the market, which also reduces risk.”
Fabio De Masi, a leading MP in Die Linke, the hard-left party, said: “An increase in negative interest rates for banks won’t achieve anything and will not force greater bank lending.”
The opposition to restarting QE also came from more moderate members of the ECB council.
François Villeroy de Galhau, France’s central bank governor, and ECB executive board member Benoit Coeuré both raised concerns in Thursday’s meeting that more bond-buying would do little to reduce already subdued interest rates, according to ECB officials. They both declined to comment.
The ECB also failed to find a sympathetic hearing among investors.
It had hoped to put downward pressure on bond yields by changing its guidance on how long it would take before interest rates started to rise again.
But financial markets did not respond in this way.
Two-year German Bunds suffered their biggest sell-off for almost four years, as yields rose almost 14 basis points, a move Deutsche Bank strategists described as “pretty shocking”.
Germany’s benchmark 10-year Bund yield rose to a six-week high of minus 0.45 per cent, while yields on French and Dutch sovereign bonds also reached six-week highs.
Elga Bartsch, head of economic and markets research at BlackRock, said the ECB went beyond market expectations in a number of areas. But she added that “the cut in deposit rates was smaller than some ECB watchers expected and the monthly pace of asset purchase was also below consensus”.
The ECB’s tiering system — introduced to shield banks from the corrosive side-effects of negative rates — may have contributed to the rise in yields, Ms Bartsch said, because banks may now put less of their excess reserves into short-term bonds.
Some senior ECB officials argued at Thursday’s meeting that restarting QE could backfire by reducing market expectations of further rate cuts and therefore push up short-term bond yields, reducing the effectiveness of the overall package.
Others fear that the central bank is running out of ammunition as its policies have a diminishing impact with interest rates already at record lows.
Mr Knot said the eurozone economy was simply not suffering enough to justify the use of such unconventional policy measures.
“Financing conditions for consumers, businesses and governments are highly accommodative and provide no impediment to credit supply, consumption or investment,” he said.
Mr Knot also warned that “there are increasing signs of scarcity of low-risk assets, distorted pricing in financial markets and excessive risk-seeking behaviour in the housing markets”.
That leaves a growing number of people asking whether negative rates and QE are the right policy measures to tackle the bloc’s stubbornly low inflation.
Additional reporting by Guy Chazan in Berlin