Three weeks following the announcement of a fresh round of monetary stimulus implemented by the governing council at the European Central Bank (ECB), prominent figures within the Euro economic area are making their voices heard, raising concerns about the package's effectiveness and asking whether such stimulus is needed.

Mario Draghi – whose days at the helm of the ECB are approaching the end, is being faced with hefty criticism. To set the record straight, the criticism comes after the Governing Council adopted a fresh wave of asset purchases amounting to €20bn of bonds per month - set to further accumulate the ECB’s balance sheet, a deposit rate cut to -0.5% from the previous -0.4%, and a push towards the implementation of fiscal stimulus. 

Central bankers split over the decision

Albeit being supported by the majority of the governing council as a means to instil economic growth within the Euro economic area, heads of prominent Central Banks - Germany, France, Austria, and the Netherlands - failed to shrug off their concerns.

Central bankers in these Euro economic area nations together account for more than half of the Eurozone’s gross domestic product. They have publicly opposed the idea, raising potential questions about the legitimacy of the ECB’s decision. It is worth noting that the questions raised mainly revolve around the timing during which the policy was being implemented.

In relation to the latter, Banque de France governor; François Villeroy de Galhau stated that “further purchases are unnecessary right now, given the very low levels of both long-term interest rates and term premia.”

Allianz CEO’s take on policy cut

Likewise, top executives in financial corporations are concerned that a low interest rate environment negatively impacts the profitability of insurance companies. It is therefore no surprise that a further policy rate cut did not go down well with financiers. 

As a matter of fact, market illustrate and chief executive of Europe’s biggest insurer Allianz, Oliver Bäte, launched an attack on the ECB and Mario Draghi himself, over “politicisation” of monetary policy in the region, and claiming that it is overdue for the governments within the Euro area to implement reforms rather than relying on monetary policy. Mr Bäte sustained his argument by stating that “the reason why we’re not doing fiscal [reforms] is because you’re [the ECB] making it easy for people to spend money they don’t have”.

In addition to the latter, Oliver Bäte accused the ECB of allowing banking institutions to undertake higher risks, this by considering government debt as risk-free, with a risk weighting equal to zero.

As envisaged, the latest round of monetary stimulus package left deep divisions. These divisions will undoubtedly make Christine Lagarde’s task a challenging one once she takes over the ECB. 

The question to be posed at this stage is whether Ms Lagarde, who seemed to be supportive of Mr. Draghi’s strategy, can heal the divisions, or whether she will be forced to change course and succumb to the pressure, given the lack of room she has to play with. 

This article was issued by Christopher Cutajar, Credit Analyst at Calamatta Cuschieri. For more information visit, . The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.


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