Christine Lagarde will soon take the helm at the ECB. She must listen to the northern Europeans—and tell them some unwelcome truths
NOT LONG ago it was hard to find anyone with a bad word to say about Mario Draghi, the Italian boss of the European Central Bank . He is credited with saving the euro by pledging, in the depths of a crisis in 2012, to do “whatever it takes” to stop the currency from breaking up. He seemed certain to leave office at the end of October to gushing tributes and an assured place in the pantheon of Europe’s great leaders. Instead, his critics are out in force.
To make the single currency palatable to the inflation-phobic Germans, the ECB was modelled on their central bank, the Bundesbank, with control of inflation at the heart of its mission. On Mr Issing’s watch, the ECB began life with a “reference value” for growth in the money supply and a flinty view of inflation: anything below 2% counted as price stability. But the reference value fell by the wayside.
Critics of negative interest rates fear that they do more harm than good by reducing bank profits, thereby deterring lending. But in June the ECB’S economists concluded that banks were passing negative rates on to their borrowers and depositors, thus avoiding a squeeze on their margins and providing an economic stimulus. Even some of the hawks on the ECB’s governing council think interest rates can safely be pushed even further below zero.
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