who is and what legacy leaves the governor of the ECB – idealist / news

We will remember him on bazooka and the "whatever it takes". Who did it, what will it do now and what is left as a legacy by Mario Draghi, outgoing president of the European Central Bank, who will soon leave Christine Lagarde in command of the Eurotower.

Draghi's legacy on mortgages

ECB Board of Directors, confirmed measures

The last Governing Council of the ECB did not have to introduce any particular changes: the rates remained unchanged (ECB rate at 0%, deposit rate at -0.5%), as did the new quantitative easing plan introduced at the previous meeting (20 billion monthly), together with the resolution to take all the necessary measures to bring up the inflation to bring it to the desired 2% level and to restart the European economy. Line, this, that new Eurotower governor, Christine Lagarde, promises to maintain.

Mario Draghi, who he is and what he did

The meeting of 24 October was to serve instead to give the salute to Mario Draghi, after an eight-year mandate in which he established himself as a man of pulse and courage in keeping the European economy afloat in the most difficult period of the post-2008 crisis with decision but with great ability to maintain the complete agreement within the board of directors, who has always approved with a very large majority every measure that brought his signature. All in the absolute conviction that theintervention of the ECB is crucial to boost the economy of the Eurozone but also to stimulate the policies of individual governments, to which Draghi has always recommended without ever indulging in favoritism of any kind.

Before joining the European Central Bank on 1 November 2011, Draghi had been Executive Director of the World Bank, Director General of the Italian Treasury, Vice President of Goldman Sachs for Europe and Governor of the Bank of Italy: positions of absolute importance that had already earned him the nickname of Super Mario.

Rate cuts, LTRO and QE

Only 72 hours after its entry into the ECB, the first measures: the 3 November 2011 interest rate cuts were announced from 1.5 to 1.25% while deposit rates fell from 0.75 to 0.5%, ushering in a season of declines that have not yet ended. To this was added, after a further rate cut just a month later, theannouncement of the first long-term refinancing operation at subsidized rates known as LTRO, which allowed European economies to refinance with an interest rate of 1% and which was repeated three times in eight years, continuing now quarterly, as scheduled, until March 2021.

But the most imposing measure, the real bazooka, Mario Draghi inaugurated it on 26 July 2012 with his famous words: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough ”. The discussion referred to the excessive interest rate on government bonds in particular of the peripheral countries, which prevented these economies from starting up again, putting at risk the hold of the entire Euro system. For this reason it was the ECB itself that became the purchaser of government bonds, inaugurating the "Quantitative Easing", A bond purchase program that injected billions into the European economic system, constituting an unprecedented support instrument for the economy.

Furthermore, since 2014 bank deposit rates are in negative territory (ie they force banks to keep the funds stored at the ECB instead of reinvesting them) while from March 2016 the main interest rates are at 0%; all this still to encourage investments in the real economy and the resilience of the single currency also in the face of the repercussions of the crisis and the global recession. Which is the real legacy of Mario Draghi, despite the goal of bringing structural inflation closer to 2% has not been achieved.

The ECB after Draghi: what will happen according to the experts

What will happen, then, at the end of Mario Draghi's mandate and with the advent of Christine Lagarde?

"Despite the publication of the minutes of the last meeting they confirmed as the decision to reduce the Deposity Facility Rate to -0.50%, while introducing a new QE round at the rate of 20 billion purchases per month starting next week . has been taken by majority, – comments Vincent Mivelaz, Swissquote analyst – it would seem that one third of the nineteen members, including central bankers from France and Germany who represent the two largest countries in the Euro area, have expressed their opposition. The expansion of the ranks of the opponents to the policy pursued by the ECB of Draghi, whose legitimacy risks being challenged by public opinion and the politics of individual countries, certainly represents a tiring viaticum for the single currency ".

It should in fact not be forgotten that, despite decisions always taken unanimously, criticisms of Mario Draghi's policy have not been spared, especially from Germany, Austria and France. It is therefore not excluded that in the near future Christine Lagarde may decide to put an end to such an accommodating monetary policy, with the explanation that this is no longer decisive for supporting the economy

"Although the prediction of the end of the stimulus policy by the central bank should be an element supporting a strengthening of the euro, – continues Mivelaz, – a further prop may come from the acceleration of the fiscal stimulus within the block. Nevertheless, this measure would seem to be already starting lame to a first consideration, considering the latest negative reactions of the Commission to the new budget deficit of 2.20% presented by the Italian Government and to the 9 billion tax reduction plan put forward in France. Anyway, we believe that the entry on the scene of Christine Lagarde can convince the other European leaders to adopt more relaxed policies regarding current spending rules. Even if further monetary easing measures cannot be excluded altogether, especially looking at the September inflation rate (0.80%) at the minimum levels of the last three years and the monotony of the scenario on the international commercial chessboard, we believe that the ECB will not have much to offer ”.

"The package of measures announced in September should make it easier for Christine Lagarde to lead the Institute, he notes Mohammed Kazmi, portfolio manager and macro strategist of Union Bancaire Privee. – In our opinion, a significant sell-off of the Bunds in the short term is unlikely, despite negative returns, given that any hawkish turn of events appears far away and that the new cycle of asset purchases has not yet begun. Monetary policy is doing what it can to sustain growth. THE'German economy but he really needs a fiscal stimulus now. The good news is that there is a room for maneuver with a low debt, a fiscal surplus, negative returns paid on loans and a population that appears more favorable to spending, especially for green projects. The question is whether it will take a greater growth shock to trigger a bigger stimulus. Sull 'Italy, instead, the concerns of the EU for the Budget Law they should be much less a market focus than the previous government ".

"As expected, Mario Draghi used his last meeting as president of the ECB to reiterate the need for accommodative monetary policies, such as those announced in September, in order to ensure that inflation can be around the 2% target , – is the comment of Goldman Sachs -. It also continues to demand that fiscal policy play a more active role in supporting growth, a message also reported by policy makers during the autumn meetings of the International Monetary Fund and the World Bank, with the monetary policy that is increasingly deemed sufficient to address growth-related challenges, such as trade protectionism. In our opinion, the ECB will not cut interest rates again in the short term; however we believe that the Eurozone's monetary policy will be accommodating for a long time to come ”.