Mario Draghi’s conflict with Germany threatened EU: ‘Barely on speaking terms’ | World | News

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The former President of the European Central Bank (ECB), Mr Draghi, was sworn-in as Italy’s new Prime Minister in early February. Among his first major tasks are to accelerate the vaccination programme and rescue the economy from its worst recession since World War 2. He also has a major role to play in Europe.

Senior writer at Barron’s Group, Pierre Briançon, wrote on Twitter: “Draghi as Italian Prime Minister does not only change Italy, it could also upset the EU’s comfy balance of power, based for too long on the Franco-German duo.

“A third heavyweight around the leaders’ table.

“Macron and Merkel (and her successor) will have to deal with an influential voice, whose competence in economic and monetary matters dwarfs theirs (to say the least) and whose international aura and prestige at least equals their own.

“Should make for interesting intra-EU dynamics.”

According to the Financial Times Europe editor Ben Hall, French President Emmanuel Macron is thrilled about having a new “powerful and credible advocate of closer European integration” just at the time when Germany prepares for a change in leadership.

He wrote: “When Angela Merkel bows out as German Chancellor, Draghi and Macron could become Europe’s new power couple.”

During his time as President of the ECB, there was apparently bad blood between him and Mrs Merkel.

Neil Irwin, the senior economics correspondent for The New York Times, even described the relationship between Mr Draghi and Germany as “dysfunctional”.

He wrote in 2014: “We’ve known for some time about the tension between the European Central Bank, charged with guiding the economies of the 18 countries that use the euro, and Germany, the largest and richest member of that zone.

“It’s not an overstatement to say that the future of Europe depends on how this conflict is resolved.

“Mario Draghi is barely on speaking terms with Jens Weidmann, the President of the German Bundesbank (and a member of the ECB’s policy-setting governing council).

“When Mr Draghi dispatched a deputy to Berlin to visit aides to Chancellor Angela Merkel, the message received was that vocal German attacks on the central bank were unlikely to end anytime soon.”

The central issue at the time was that Mr Draghi and the ECB saw Europe as being on the cusp of a triple-dip recession.

Europe was also at risk of getting stuck in a cycle of very low inflation and stagnant growth.

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For this reason, the Bank was considering doing an American-style programme of quantitative easing, or buying vast sums of bonds with newly created euros, to try to avert this fate.

It was also encouraging Germany and other European nations to loosen the purse strings a bit and pursue fiscal policy that was more supportive of growth.

On the other hand, in Germany, both elected leaders in Berlin and central bankers at the Bundesbank in Frankfurt viewed the worry over deflation as overwrought, the need for fiscal probity as critical, and any effort to print money to buy government bonds as the pathway to hyperinflationary perdition.

Mr Draghi ended up doing “whatever it takes” to save the euro and tensions reached an all-time low in 2016.

The now-Italian Prime Minister told German politicians to stop meddling after they publicly criticised ECB actions.

Mr Draghi said: “We have a mandate to pursue price stability for the whole of the eurozone not only for Germany.

“We obey the law, not the politicians, because we are independent as stated by the law.”

The outburst came after German Finance Minister Wolfgang Schaeuble blamed the ECB for the declining popularity of Mrs Merkel’s ruling party.

He said the bank was causing “extraordinary” problems for Berlin and was in part to blame for the rise of the anti-immigration Alternative for Germany (AfD).

The ECB had slashed interest rates further, a move which was hammering German savers, but the Bank was faced with the more pressing problem of a struggling eurozone economy.

Mr Draghi had also unleashed a fresh round of quantitative easing, injecting billions of pounds worth of cash into the economy in a bid to kick-start growth.

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Former German Economy Minister Sigmar Gabriel also blasted the move, stating the policy had reached its limits.

Mrs Merkel defended the comments made by her government and said they were right to criticise the bank.

The German leader made it plain that she also felt the ECB’s policy was wrong but insisted that this did not compromise the independence of the Bank.

She said: “The ECB is independent in its policy.

“It has a clear mandate, that of price stability.

“It’s uncontested that monetary policy can’t solve all problems. That’s why it’s the responsibility of us politicians to do our homework in our area, in economic policy, in structural reform.

“The better we do this, the faster growth will come and then the inflation rate will certainly rise again.”

She added: “That people in Germany nonetheless discuss that interest rates were once higher, that is legitimate, I believe.

“And it shouldn’t be confused with interference in the independent policy of the ECB, which I fully support.”

Mr Draghi emphasised the controversial measures were working and vowed to use the full scope of his monetary powers for “as long as needed”.

In another snipe, he also laid some of the blame for the eurozone’s struggling economy at the feet of governments.

He said the region’s economy would have been on a more solid footing if fiscal policy and more ambitious reforms were pushed through.

The chief insisted the economy would have been in a worse state today had the bank not cut rates and printed more money, but said more time was needed to prove his point.

He said: “Our policies work, they are effective. Just give them time to fully display their effects.

“Global uncertainties persist. Looking forward, it is essential to preserve an appropriate degree of monetary accommodation as long as needed.”





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