European Central Bank President Mario Draghi told European Union leaders that the central bank has “no alternative” to its recent rate cuts and monetary policy actions, according to two officials familiar with deliberations.
Draghi told EU heads of government gathered in Brussels that the most important thing they could do would be to provide clarity on the future of the euro area during a closed-door session. He also encouraged them to support the central bank by reassuring savers, insurers and bankers about potential market distortions or risks to financial stability from the latest stimulus efforts. The officials asked not to be identified discussing private talks.
The ECB last week delivered interest-rate cuts, more bond purchases and a potential subsidy to lenders in a renewed bid to quash the threat of deflation. The steps mark a dramatic expansion of the central bank’s stimulus program, using tools that have never been deployed on such a scale in Europe.
Draghi also spoke to reporters after leaders wrapped up the economic part of their deliberations and he left the meeting. He said the ECB can’t do much about some of the euro area’s biggest vulnerabilities, even as he pledged that rates would stay low and to use “all the appropriate instruments” as the outlook requires.
“I made clear that even though monetary policy has been really the only policy driving the recovery in the last few years, it cannot address some basic structural weaknesses of the euro-zone economy,” Draghi said.
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The ECB’s efforts to fan inflation in recent years have provoked opposition from policy makers in Germany, where concerns about price stability have often trumped measures to promote growth. Draghi last week said the central bank is done with the “nein zu allem — no to everything” mentality that some nations have expressed in the past.
At Thursday’s summit, Draghi told the leaders that there are limits to what monetary policy can accomplish on its own, and he urged them to make the most of fiscal space and structural reforms that can boost employment. He said savers should be reminded to focus on real interest rates, not nominal rate levels, and that banks and insurers should adjust their business models to monetary policy as needed.
European Commission President Jean-Claude Juncker responded by reminding the central bank chief that governments are restrained by EU custom from commenting on monetary policy. At the same time, the officials said, he told the leaders that he supported the ECB’s recent actions and felt they could be a “game changer” for the economic outlook.
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