European Central Bank President Mario Draghi offered a vigorous defence of the bank’s bond-buying plans to a sceptical German audience on Tuesday and said it was now up to governments to follow up with decisive policy steps of their own.
Speaking at a conference of the Federation of German Industries (BDI) in Berlin, Draghi described the ECB’s plan, unveiled earlier this month, to buy the sovereign bonds of stricken euro members as a “bridge” rather than a solution to the three-year old crisis haunting the currency bloc.
And he cautioned euro zone leaders against complacency, saying they must seize on the improved sentiment generated by the ECB to press ahead with reforms and closer integration.
“The current improvement in sentiment does not mean everything is solved,” Draghi said in his first major policy speech in Germany since his plan, dubbed “Outright Monetary Transactions” unleashed a storm of criticism here.
“The ECB’s action can only be the bridge to the future. The project must be completed through decisive actions by governments both individually and colllectively.”
Draghi’s bond-buying plan was opposed by the influential German Bundesbank, whose chief Jens Weidmann has suggested Draghi’s steps represent a violation of the ECB’s mandate for ensuring price stability.
The Italian ECB chief said he had “enormous respect” for the Bundesbank and made clear that he and his colleagues on the ECB’s policy-making Governing Council shared many of its concerns. Where they differed, he said, was in how to respond.
“In the current circumstances, the greatest risk to stability is not action, it’s inaction, this is why the ECB has acted,” Draghi said.
Draghi rejected Weidmann’s contention that the bond-buying programme amounts to financing of governments, saying the euro area had experienced a “very severe fragmentation” in recent months, characterised by diverging borrowing costs that reflected “unfounded” fears of a euro zone breakup.
“The ECB’s Governing Council therefore faced a choice: to accept this situation and allow the singleness of its monetary policy to be undermined; or to take actions within its mandate to restore the normal transmission of monetary policy across all parts of the euro area. We decided in favour of the latter.”