Mario Draghi

Peter Spiegel

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Draghi, left, and Schäuble, bottom right, at the IMF spring meetings in Washington last week

The European Central Bank holds its monthly monetary policy meeting tomorrow amid one of the most overheated political environments for Mario Draghi and his fellow governors since the height of the eurozone crisis. And despite the German government’s long-stated insistence that central banks should jealously guard their independence and not be pressured by elected officials into making decisions that are politically expedient, the most pointed criticism is coming from Berlin.

The most surprising broadside came nearly two weeks ago from Wolfgang Schäuble, the German finance minister, who publicly claimed to have told Mr Draghi that his loose money policy was to blame for about 50 per cent of the votes received by the ascendant anti-immigrant Alternative for Germany party in last month’s regional elections. Mr Schäuble also called on the US, UK and the eurozone to band together in pressuring their central banks to “carefully but slowly exit” their economic stimulus policies. Hardly the model of respecting central bank independence.

Mr Schäuble’s remarks appear to have opened the floodgates. Hans-Peter Friedrich, a former interior minister in Chancellor Angela Merkel’s government and a member of the Bavarian sister party of her governing Christian Democrats, told the mass-market Bild tabloid at the weekend that Mr Draghi’s replacement “must be German” and respect the Bundesbank’s tradition of “monetary stability”. Axel Weber, the former Bundesbank chief who nearly beat Mr Draghi out for the top ECB job in 2011 before resigning, told the Wall Street Journal this week that more monetary easing would be counterproductiveRead more

Peter Spiegel

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Happy European Central Bank monetary policy meeting day! It’s the time of the month eurozone economy watchers crowd around their desktop livestreams to find out what new plan Mario Draghi has concocted to revive the region’s growth, since the latest one still doesn’t seem to be working. The problem is that the arrows in Mr Draghi’s economic stimulus quiver are running out, and those that are left all have significant limitations once they’re fired.

Let’s start with a central bank’s most basic tool: lowering interest rates to spur borrowing and investment. In normal times, cutting borrowing costs is a no-brainer. As of December, however, Mr Draghi lowered the ECB’s deposit rate to negative 0.3 per cent. In theory, a negative deposit rate would spur bankers to lend, since leaving the cash in ECB accounts means they’re actually losing money. But so far, there’s been little evidence that logic has taken hold.

Negative interest rates are also difficult politically in the ECB’s host country of Germany, where thriftiness is next to godliness and savings accounts and insurance policies are viewed as important income generators. Lower rates mean lower returns on savings, and cuts in ECB rates are treated with the kind of purple prose and blaring headlines in German tabloids that are normally reserved for celebrity divorces and grisly murders in similar newspapers abroad. Even before the ECB met, the German banking association was out with a statement yesterday saying further interest rate cuts would do “more harm than good.” Read more

Peter Spiegel

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Amid the doom and gloom surrounding the eurozone’s continued inability to shake off the funk that set in after the sovereign debt crisis started six years ago, policymakers have recently been able to latch on to a bit of sunshine that Brussels has dubbed “temporary tailwinds”. These “tailwinds” are not the kind of good news normally associated with a strong economic recovery, such as companies expanding or workers’ wages increasing. Instead, they’re called “tailwinds” because they make it easier for those things to start happening – a little wind at the back of those thinking about investing in a new plant or hiring more people.

For the eurozone, these tailwinds take three forms: lower oil prices, which fatten the wallets of consumers and energy-intensive industries; a weak euro, which makes European products cheaper to sell overseas; and “accommodative” monetary policy, which lowers interest rates and makes it cheaper for investors to borrow money and build things.

There’s nothing much EU policymakers can do to affect the price of oil, though lifting Iranian sanctions has contributed to the perception the world is now awash with supplies. But yesterday Mario Draghi, the European Central Bank president, did a whole lot for the other two “tailwinds” with just a few sentences of central-bank-ese. First, he described “heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risks” – by which he mostly meant recent market upheaval in China. He also noted that eurozone inflation, which is supposed to be running at about 2 per cent each year, remained “weaker than expected”. Then he unleashed the sentence that got everyone really excited: “It will therefore be necessary to review and possibly reconsider our monetary policy stance at our next meeting in early March.” Which means that his already-accommodative monetary policy is likely to get even more accommodative in just a few weeks. Read more

Peter Spiegel

ECB chief Mario Draghi, right, with France's François Hollande at October's EU summit

The dance had become so routine that we at the Brussels Blog were thinking of giving it a name, the Eurozone Two-Step.

Ever since the eurozone crisis first rocked international markets nearly five years ago, European Central Bank chiefs – first Jean-Claude Trichet, then Mario Draghi – sent a very clear message to the currency union’s political leaders: we can only act if you act first.

The deal was never explicit, but both sides knew what was required. The ECB’s first sovereign bond purchase programme in May 2010 came only after eurozone leaders created a new €440bn bailout fund; its €1tn in cheap loans to eurozone banks in early 2012 only came after political leaders agreed to a new “fiscal compact” of tough budget rules.

But with the markets watching Frankfurt closely for signs Draghi is about to launch another bold move – US-style quantitative easing, purchasing sovereign bonds to halt fears the bloc is headed into a deflationary spiral – there are new indications one of the partners is no longer dancing.

Back in October at a eurozone summit, Draghi was able to get a little-noticed statement out of the assembled leaders committing them to another “Four Presidents Report”, a reference to the blueprint delivered in 2012 that set a path towards further centralisation of eurozone economic policy. The report helped kick-start the EU’s just-completed “banking union.”

Progress on that 2012 blueprint has since stalled, however, and at his last summit press conference, then-European Council president Herman Van Rompuy said the new “Four Presidents Report” would be delivered at the December EU summit, which starts next Thursday. Many in Brussels saw this as the quid for Draghi’s quo – once the leaders agreed to another blueprint for eurozone integration, Draghi would have a free hand to launch QE.

But according to a leaked draft of the communiqué for next week’s summit, Draghi may have to deliver his quo without a eurozone quid. The text (which we’ve posted here) makes clear that leaders have no intention of delivering a new blueprint any time soon. Read more

Do last week’s German constitutional court ruling lambasting – but failing to overturn – the European Central Bank’s crisis-fighting bond-buying programme and today’s political upheaval in Italy have anything in common?

In the view of many ECB critics, particularly in Berlin, the two are not only related, but one may have caused the other. Read more

eurocoasterWelcome back to our live coverage of the eurozone crisis. By Tom Burgis and Esther Bintliff on the  newsdesk in London, with contributions from FT correspondents around the world.

All times are GMT. This post should update automatically ever few minutes, but it may take longer on mobile devices.

Europe’s leaders gather in Brussels today for another crunch summit. This time, we’re told, it’s different. Expectations are running high for a new grand bargain to restore sanity to the eurozone’s finances and chart a course out of the debt crisis. We’ll bring you all the build-up, plus:

  • The European Cental Bank’s interest rates decision and press conference from Mario Draghi, the ECB president under pressure to deploy more of the central bank’s resources to shore up the euro
  • The meeting of centre-right European leaders in Marseille, including Germany’s Angela Merkel and Nicolas Sarkozy of France, the two key players in the euro drama
  • The unveiling by the European banking authority of the individual capital needs of Europe’s banks

 Read more