Mario Draghi hits back at QE hawks

23/3/2015

By Claire Jones

Mario Draghi has hit back at hawks at the European Central Bank, challenging accusations that the eurozone’s €1.1tn quantitative easing programme will lead governments to abandon economic reforms.

Critics of QE, such as Bundesbank president Jens Weidmann and the head of the Dutch central bank, Klaas Knot, argue the policy, which helps lower the cost of borrowing for member states, will allow countries such as France and Italy to shirk unpopular reforms.

Mr Draghi told the European Parliament in Brussels on Monday that he “begged to differ” with this view, saying the ECB’s purchases of sovereign bonds would produce an “additional benefit” for eurozone member states when they were “complemented by structural reforms”.

The ECB president told lawmakers it was “very dubious” that a fall in the cost of borrowing for member states automatically weakened the appetite for structural reforms. He said: “Do you really think a high level of interest rates would form an incentive for a government to improve its education system, or judiciary, or electoral system?”

Figures published by the ECB on Monday showed eurozone central bankers had bought €26.3bn of government bonds as of the end of last week. The central bank is expected to buy about €850bn-worth of sovereign debt between now and September 2016.

The ECB would be able to buy government bonds in the volumes needed. “Any market feedback seems to show we have no difficulties,” Mr Draghi said.

Mr Draghi denied accusations that the ECB was blackmailing Greece. “The ECB has €104bn of exposure to Greece. This is equal to 65 per cent of Greek GDP, which is the highest exposure in the eurozone,” he said. “So what sort of blackmail is this?”

The denial follows the leaking of a letter from Greek prime minister Alexis Tsipras to German chancellor Angela Merkel. In the letter, Mr Tsipras called for the ECB to reintroduce a waiver that would allow Greek banks to use their sovereign’s debt as collateral to secure cheap loans from the central bank’s regular auctions.

The ECB president said the waiver would only come back after “several conditions” were met. While Greece was not there yet, Mr Draghi said the ECB was “confident they will be, as this process of policy dialogue is being reconstructed”.

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