The independence of central bankers globally is being threatened by governments demanding monetary support, from debt cancellation to bond purchases and lower rates, European Central Bank (ECB) President Mario Draghi said yesterday.
Italy’s two ruling parties had considered asking the ECB to forgive 250 billion euros (US$289.39 billion) of Italian debt that it owns during their coalition talks in May before ditching the idea in the final version of their government accord.
“They’re asking to change rates, [debt] cancellation. They’re asking them to do other things, buy bonds,” Draghi told a news conference at the IMF and World Bank annual meetings on Bali.
Draghi did not mention Italy, but cited Turkey, where Turkish President Recep Tayyip Erdogan sharply criticized the ECB and repeated his opposition to high interest rates, shortly before the bank was due to announce a policy decision.
“Just look at what President Erdogan asked the central bank to do about a month ago. It’s just a general sense that this is one of the risks in the geopolitical sphere,” he said.
Draghi said Italian officials must stop questioning the euro and need to “calm down” in budget debates as they have already caused damage to firms and households.
“A budgetary expansion in a high debt country becomes much more complicated ... if people start to put in question the euro,” Draghi said.
Draghi, former governor of the Italian central bank, said that markets had not reacted in June to the ECB’s decision to end its asset buys, but had moved specifically on local Italian issues.
The ECB chief said ECB policy is working as intended and the biggest risks to the policy outlook are a sharp repricing of assets or a sudden rise in interest rates, Draghi said.
He said that specific risks include lingering stability issues in the banking sector or a surprising increase in inflation, which appears unlikely in the eurozone, but a more relevant issue in the US.
On the downside, a risk would be a “snap back” in rates relating to geopolitical issues, such as trade tensions, a renegotiation of EU rules by member nations or infringement on central bank independence by governments, Draghi said.
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