Palace Revolt at the ECB, Legitimacy of Policy out the Window

Draghi’s desperate shenanigans thicken.

By Wolf Richter of WOLF STREET

ECB President Mario Draghi, who is on his way out, will, as we’re learning more and more, do anything to push his agenda and make it stick at the ECB long after he leaves, but whatever his agenda may be, it’s clearly unrelated to the European economy which has been buckling under the consequences of his agenda: the destructive weight of negative interest rates and QE. And in the process, he is destroying the legitimacy of the ECB’s policy.

The latest incident was on Thursday. During the press conference following the ECB’s policy meeting, he lied to reporters, claiming that the “consensus was so broad there was no need to take a vote,” when in fact he had a revolt on his hand during the meeting by the presidents of the national central banks that represented half of the economy of the Eurozone, and by members of the Executive Board.

Among the key policy changes the ECB announced on Thursday was the restart of QE to the tune of €20 billion a month and a tiny 10-basis point cut in its deposit rate, from the old negative -0.4% to the new negative -0.5%.

The announcement also included a provision to help banks – which have been getting re-crushed by these idiotic negative interest rates – to survive those negative interest rates: the ECB would exempt part of the banks’ deposits at the ECB from negative rates in a two-tier system.

It was the QE portion of the decision that had triggered the unprecedented revolt during the meeting. “Officials with knowledge of the matter” told Bloomberg that during the contentious meeting, the members of the Governing Council and of the Executive Board who vigorously opposed the restart of QE included but was not limited to:

  • Jens Weidmann, President of the Bundesbank
  • Francois Villeroy de Galhau, Governor of the Bank of France
  • Klaas Knot, President of the Dutch central bank
  • Ewald Nowotny, Governor of the Austrian central bank
  • Ardo Hansson, Governor of the Bank of Estonia
  • Sabine Lautenschlaeger, Member of the Executive Board
  • Benoit Coeure, Member of the Executive Board

The countries of the five heads of the national central banks, from Weidmann to Hansson, account for about half of the economy of the Eurozone...

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