Mr. Draghi Regrets His Inability to Debase the Currency
Mario Draghi has managed to talk the bonds of completely insolvent governments up, merely by making vague promises of doing something that sounded somewhat dodgy, even illegal. Since he never actually had to keep his promise, this must surely count as an astonishing feat in central banking history.
Convinced of his power to move markets by mere utterances, he is lately engaging in what superficially appears to be a far easier task for a central banker, namely trying to talk down the currency the bank is issuing. Given that there is no theoretical limit to how much of its confetti a central bank can create, this should be a piece of cake. In a way this is however really a head-scratcher. Hasn’t said currency only just recently come out of intensive care? We still happen to remember news magazine covers like these:
Newsweek times an interim low in the euro …
And another one …
The Economist didn’t want to be left out (perfect timing here as well)
Why would anyone want to talk this thing down, now that the markets have finally become convinced it is worth holding? Reuters reports that “ECB’s Draghi says appreciated euro a risk to recoveryâ€:
“A stronger euro exchange rate is a risk to the sustainability of the euro zone recovery, European Central Bank President Mario Draghi said on Monday, while stressing that he has no plans to leave the bank.
Draghi reiterated his position that the exchange rate is not a policy target for the ECB, but said it was nonetheless an important driver of future inflation in the euro area.
“Certainly, the appreciation that took place since mid-2012 had an impact on price stability,” Draghi told the European Parliament’s Committee on Economic and Monetary Affairs in Strasbourg. “In the present context, an appreciated exchange rate is a risk to the sustainability of the recovery,” he added.
The ECB has faced pressure from the French government to bring down the euro’s exchange rate, as a stronger euro risks hurting euro zone members’ exports.
The head of planemaker Airbus, Fabrice Bregier, has also called on the ECB to take steps to devalue the common European currency to help exporters who are being hit by a strong euro.
The ECB cut interest rates to record lows last month as part of a package of measures to breathe life into a sluggish euro zone economy. Draghi said the moderate recovery in the euro zone was expected to continue but that risks to the outlook were on the downside.
“The Governing Council is unanimous also in using also unconventional measures to address the risk of a too prolonged period of too low inflation,” if needed, he said.
“QE falls squarely in our mandate,” he added with reference to so-called quantitative easing, or money printing to buy assets.â€
