European Central Bank chief Mario Draghi hit back Wednesday at critics of his armory of different anti-crisis measures, saying they were justified by the current exceptional circumstances.Facing a primarily German revolt to the wide range of emergency measures the ECB has taken since the very beginning of a crisis that is threatening to break up the single currency area, Mr. Draghi wrote in a newspaper article that the bank was pulling out all the stops to help.
“The ECB will do what is necessary to ensure price stability. It will remain independent. And it will always act within its mandate. Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools,” Mr. Draghi wrote in the article for German weekly Die Zeit.
The ECB is seen by many as the only European body capable of putting out the fires of the long-running crisis.
It has slashed interest rates, pumped more than a €1-trillion ($1.25-trillion U.S.) into the banking system and launched a contested program to buy sovereign bonds issued by debt-wracked countries in a move that has helped bring down their borrowing costs.
However, the ECB has recently come under intense pressure to don its fire-fighting helmet once again and relaunch the bond-buying program.
Earlier this month, Mr. Draghi said the ECB “may” resume bond purchases, but only under strict conditions that are still being worked out.
Nevertheless, there is strong opposition to such moves, particularly in Germany which argues it goes against the very spirit of eurozone treaties.
Mr. Draghi’s German colleague on the ECB governing council, Bundesbank chief Jens Weidmann, is among the most vocal opponents.
He argues the practice is tantamount to monetary financing, where the central bank prints money to pay off a country’s debt – something expressly forbidden under the ECB’s statutes.
Mr. Weidmann’s predecessor Axel Weber already quit in protest over the program, as did the ECB’s former chief economist Juergen Stark, also German.
In a newspaper article Tuesday, Mr. Stark warned that the ECB’s “panic-fuelled and hyperactive measures” were undermining confidence in and the credibility of the central bank and the euro.
The bank was treading a “very dangerous path” in “allowing its independence to be eroded by politicians,” Mr. Stark warned, saying the ECB had “absolutely no democratic legitimation” for the bond-buying program.
Mr. Draghi responded in an article of his own, to be published on Thursday but released by the ECB in advance.
“When markets are fragmented or influenced by fears, our monetary policy signals do not reach citizens evenly across the euro area,” he countered.
“We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens,” the Italian central banker said.
“This may at times require exceptional measures. But this is our responsibility as the central bank of the euro area as a whole.”
But leading German economists were also critical.
The head of the economic think tank IW, Michael Huether, said that “no form of intervention by the central bank – be it on the bond market or in the provision of liquidity – can resolve an economy’s structural problems.”
The bond-buying program in particular would alter the ECB’s mandate, Mr. Huether told the online edition of Handelsblatt.
“Monetary policy and fiscal policy are being knotted together. The central bank’s autonomy is being jeopardized,” he said.
The ECB has made it clear that it will intervene on the bond markets only in conjunction with European Union rescue funds, the European Financial Stability Facility (EFSF) and its successor, the European Stability Mechanism (ESM).
The problem is that the ESM cannot come into operation until it is ratified by Germany and ratification has been held up by legal challenges, which are currently before the country’s constitutional court.
The court is scheduled to give its ruling on September 12, and some observers suggest the ECB could hold off relaunching its bond purchases until then.
In his article, Mr. Draghi made some comments directed at Germany.
“The root of Germany’s success is its deep integration into the European and world economies. To continue to prosper, Germany needs to remain an anchor of a strong currency, at the centre of a zone of monetary stability and in a dynamic and competitive euro area economy. Only a stronger economic and monetary union can provide this,” Mr. Draghi said.