EUROPEAN CENTRAL Bank president Mario Draghi told German MPs yesterday that his institution’s bond-buying programme would not drive inflation or compromise the ECB’s political independence.
Mr Draghi’s unusual decision to address a national parliament reflects his concern at the growing belief in German political and economic circles that the ECB has allowed itself become a political hostage in the crisis.
The Outright Monetary Transactions (OMT) programme, designed to lower interest rates for crisis-hit euro zone countries, has brought Mr Draghi into open dispute with the Bundesbank, which has refused to back the programme.
Yesterday’s Bundestag appearance – technically the central bank is answerable only to the European Parliament – was an attempt to stanch what the ECB views as a growing flow of misinformation in the German media.
“I am aware that some observers in this country remain concerned about the potential impact of this policy,” said Mr Draghi to a closed-door hearing of the Bundestag’s committees on Europe, finance and budgetary affairs.
The OMT programme was devised to address “severe fragmentation” in an “increasingly disturbed” euro system. Increasingly divergent interest rates posed a threat to economic growth and public finances, he said.
The ECB president dismissed the main criticisms of the programme, widely aired in Berlin and Frankfurt. Firstly, the bank had not begun the forbidden financing of governments, he said, because it would only buy bonds from investors on secondary markets – and only papers with short maturities of up to three years.
Conditions attached to bond-buying – in particular that countries in question apply for an European Stability Mechanism (ESM) bailout – would preserve the ECB’s independence from politics, he said.
Crucially, for German ears, he said the programme had shown no negative effect on the “firmly anchored” inflation rate – and its future expectation – because the overall affect of the OMT was neutral. “For every euro we inject, we will withdraw a euro,” he said.
Mr Draghi’s appearance appeared to have had the desired effect. Norbert Barthle, budgetary spokesman for the ruling CDU, said Mr Draghi’s answers were “very convincing”.
Meanwhile the head of the ESM said he expected that bailed-out countries should be in a position to finance themselves by the end of 2014. “That should be well under way in two years,” Klaus Regling, head of the ESM, said. He did not name specific countries.
