LONDON (Reuters Breakingviews) - Mario Draghi has done as much as he can to help his successor at the European Central Bank. The bold steps taken by the outgoing central bank boss to stimulate the euro zone economy are, however, creating a different headache for Christine Lagarde even before she starts at the beginning of November.
The difficulty stems from the increasingly public backlash against the package of measures that Draghi announced a month ago. That included plans to start buying government bonds again and continue purchases until shortly before the central bank raises rates. The latest expression of dissent came in the form of a leak to the Financial Times, which reported on Thursday that Draghi ignored advice from the bank’s monetary policy committee. The body, which is made up mostly of technocrats from the euro zone’s 19 central banks, had advised against resuming bond-buying. Its recommendations are not normally made public.
The revelation came less than a week after six former euro zone central bankers penned a two-page document criticising the very loose monetary policies adopted during Draghi’s eight-year term. Moreover, central bankers representing countries that account for more than half of the euro zone’s gross domestic product had dissented at the September policy meeting, Reuters had previously reported.
The leaks and public critiques reflect dissatisfaction that the ECB will buy more sovereign debt even though yields are already very low. More than two-thirds of euro zone government bonds on the Tradeweb platform trade at negative yields, according to Oct. 3 data from the electronic bond trading firm. Draghi’s style may also be a source of frustration. The Italian has at times announced bold, albeit vague, plans and then worked on details and building consensus later. The most striking example was his commitment in 2012 to do “whatever it takes” to preserve the euro.
The rash of public dissent won’t make the ECB ditch its policy anytime soon. Reversing course would be far too damaging for credibility. But it does mark out the battle lines for Lagarde. The incoming president’s most pressing task will be to smooth ruffled feathers and ensure governors of national central banks feel that they are being both heard and heeded. Fortunately, that plays to her strengths.
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