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Analysis
European monetary boss says less is more

European monetary boss says less is more

In sign of growing up, Draghi wants to reduce ECB meetings 

by David Marsh

Mon 28 Apr 2014

Mario Draghi, the European Central Bank (ECB) president, believes less is more. He rarely says too much when too little would be better. Over the two-and-a-half years since he took on the job in November 2011, Draghi has made 80 statements or speeches, according to the ECB website (not counting his monthly set-piece press conferences after governing council meetings).

This compares with 153 in the two-and-a-half preceding years by his loquacious predecessor Jean-Claude Trichet.

The ECB is also growing up. So it’s not surprising that Draghi has launched a move to cut down the annual number of monetary policy-setting meetings of the 24-member governing council to eight from the present 12. This would mirror the pattern of the Federal Open Market Committee (FOMC) that sets interest rates in the US.

And it would signal a more mature phase in the ECB’s development, away from a central bank that hyperactively insists on always being at the frontline of communication, towards one that follows a more considered and less frenetic information policy.

Draghi revealed the shift in an address in Amsterdam on 24 April at a conference marking the 200th anniversary of De Nederlandsche Bank, the Dutch central bank.

The modification is closely tied up with plans for the ECB to issue minutes of its decision-making sessions, which seem likely to be released (like in the US) three weeks after policy-setting meetings – a pace that would be out of kilter with the present arrangement of monthly monetary meetings.

Unlike the FOMC, the ECB seems unlikely to publish the names of council members who vote for or against certain policy decisions. This is on the grounds that this could damage the independence of individual country members who are supposed to be taking decisions based on the interests of the euro area as a whole, rather than their individual jurisdictions.

The change in rhythm would reduce further the number of occasions that Draghi has to meet the press. This would mark the biggest single alteration to the central bank’s communication since it was set up in 1998. Mind you, signs of a pivotal amendment in European central banking thinking were themselves somewhat opaque.

Draghi uttered a typically elliptical aside revealing the new stance in a phrase that was not contained in the official version of the speech published on the ECB’s website. As a result, much media coverage of his Amsterdam address failed to note the change in tack.

Draghi’s tilt in favour of FOMC practice should remind readers of his strong US affiliations. His links with his Italian homeland are arguably more distant than those with America. He earned a PhD in economics from the Massachusetts Institute of Technology in 1976, and in 1984-90 was Italian executive director at the World Bank. In 2002-05, a formative time for the euro, when much was going wrong in the councils of European power, Draghi was conveniently away from the European action, as a managing director of Goldman Sachs.

Draghi has not yet informed his council of any plans for a change in dates. Undoubtedly, though, it would, be a popular move. At present, council members – the 18 central bank governors of the euro area, plus the six-person executive board – meet in Frankfurt twice a month. This includes a monthly session on administrative affairs – a frequency that many governors who travel from wide-ranging locations find irksome.

Now that the ECB, through the still-under-construction European banking union, has entered fully into the mainstream of financial stability as well as monetary stability, Draghi feels it is time to retreat somewhat from the parapet. He has shown signs of being bored with too much communication and is quite happy to make fewer statements and let his listeners work out for themselves what he means. His famous phrase in July 2012 affirming that the ECB would ‘do whatever it takes’ to prevent up euro break-up – an affirmation that has not so far been (and may never be) tested – remains the most striking example.

Elsewhere in his Amsterdam speech, Draghi was fairly upbeat on the anchoring of inflationary expectations around 2% and the likelihood that euro area inflation would return to that level over time from the present unnaturally low rate of 0.5%.

Nothing that he said indicated that wholesale quantitative easing is immediately on the cards. If anything, he has retreated from this idea. He squarely put conventional measures such as a further cut in interest rates in the forefront of policy options, should the governing council decide that policy is too tight.

In unscripted remarks in answer to questions, he made some interesting comments about central banks' independence, accepting that they had to become more transparent and accountable as a result of moving into a greater number of operating areas. He said: 'Central banks are very powerful, they are not elected and they want to be independent. That doesn't square very well together. It's kind of bizarre. It only squares if independence is enshrined firmly in a mandate. So that's why I don't want a broadening of the mandate.'

Draghi was quite scathing about mistakes made before the crisis, including by the ECB. He labelled as a 'delusion', the formerly widespread belief that in Europe 'countries were the same', which led to a big decline in the risk premium on individual euro area bonds.

Draghi was open about the muted outlook for economic growth in the euro area. Asked about whether there was any possibility that the ECB might be surprised by a more powerful growth outlook (which would then put upward pressure on inflation), he said: 'This looks so unlikely that we haven't even thought of it.'

David Marsh is Managing Director of OMFIF

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