Mario Draghi Brushes Off Calls to End ECB's Monetary Stimulus

By Tom Fairless and Todd Buell Features Dow Jones Newswires

European Central Bank President Mario Draghi defended the ECB's monetary stimulus before Dutch lawmakers on Wednesday in a rare visit to a national parliament, as pressure builds in Northern Europe for a policy change from Frankfurt.

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Speaking in the Dutch Lower House, Mr. Draghi argued that the ECB's large-scale bond purchases and subzero rates have helped support local households and the national budget. He emphasized that the policies would remain in place for now, brushing off calls for a swift exit.

"It is too early to declare success," Mr. Draghi said, pointing to weak core inflation and wage growth. "Maintaining the current very substantial degree of monetary [stimulus] is still needed for underlying inflation pressures to build up."

The visit to The Hague comes at a sensitive time for the ECB, which is considering when to start winding down its EUR60 billion ($65.22 billion) monthly bond-purchasing program, known as quantitative easing. The program is currently due to run at least through December.

The eurozone's EUR10 trillion economy grew faster than the U.S. in the first quarter, and inflation has surged to 1.9%, within the ECB's target range of just below 2%.

As the region's economy has picked up, the ECB's stimulus has come under increasing attack in richer member countries such as the Netherlands and Germany. Officials in these countries are worried about the impact of years of ultralow interest rates on the returns of savers. Dutch lawmakers are also concerned about the impact on the nation's huge pension funds.

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Dutch central-bank governor Klaas Knot said in an interview in March that the risk of deflation had disappeared, and the ECB might soon take steps to exit its stimulus.

But Mr. Draghi gave no signs of any such shift. He argued that potential negative side effects from the ECB's policies had been limited, though the bank was monitoring them closely.

Mr. Draghi highlighted the benefits of the ECB's policies for households across the eurozone, including in the Netherlands. By supporting the economic recovery, ECB policies create jobs and boost returns on investment, he said. They also help taxpayers: the Dutch government ran a EUR2.9 billion surplus last year, its first surplus since 2008, thanks in part to the ECB's policies, he said.

"As an export-oriented country, the Netherlands is currently benefiting from the recovery in other euro area countries," Mr. Draghi said.

While low interest rates may depress returns for pension funds, the ECB's bond purchases have also helped to increase the value of pension fund assets, he said.

The ECB chief also stressed that the central bank's actions weren't unique: Central banks in the U.S., Japan and the U.K. also used asset purchases, while central banks in for example Sweden and Switzerland reduced key interest rates to below zero, he said.

Write to Tom Fairless at tom.fairless@wsj.com and Todd Buell at todd.buell@wsj.com

European Central Bank President Mario Draghi clashed with Dutch lawmakers on Wednesday over the ECB's monetary stimulus, underscoring mounting pressure for a policy change from Frankfurt as the region's economy heats up.

Mr. Draghi's rare visit to The Hague comes at a sensitive time for the ECB, which is considering when to start winding down its EUR60 billion-a-month bond-purchase program, known as quantitative easing. The program is currently due to run at least through December.

Tempers occasionally flared during a two-hour hearing in the Dutch parliament, as politicians probed Mr. Draghi on the ECB's record of transparency, and attacked policies they said subsidized southern European countries and harmed Dutch pensioners.

"You still believe this [QE program] is fully within [the ECB's] framework and you have not been doing any government financing, even though you [will have] bought EUR2.5 trillion of debt by the end of the year?" said Pieter Omtzigt, a member of the center-right Christian Democratic Appeal.

Mr. Draghi strongly defended the ECB's decisions, which he said had helped support households throughout the region, including in the Netherlands. He also brushed off calls for a swift exit from QE.

"It is too early to declare success," Mr. Draghi said. "Maintaining the current very substantial degree of monetary [stimulus] is still needed for underlying inflation pressures to build up."

The ECB is accountable to the European Parliament in Brussels, but Mr. Draghi occasionally travels to national capital cities to defend the bank's actions -- most recently to Berlin, in late September. That trip helped to soothe German lawmakers as the ECB prepared to extend its stimulus again.

This year, the bloc's economic outlook looks far more rosy. Eurozone growth outpaced that in the U.S. during the first quarter, according to the European Union's statistics agency, while inflation has rebounded to 1.9%, within the ECB's target range.

Political risks have also faded, as anti-euro politicians in the Netherlands and France failed to make much headway in national elections.

As growth has picked up, Dutch and German politicians have been calling with increasing urgency for the ECB to reverse course. The bank's balance sheet has already risen to an all-time high of EUR4.16 trillion as a result of its bond purchases, surpassing that of the Federal Reserve, which stands at around $4.5 trillion.

Nevertheless, top ECB officials say their job isn't yet done. Underlying inflation remains weak, and the bloc's unemployment rate, at 9.5%, is far too high.

Mr. Draghi highlighted ECB research, published Wednesday, suggesting that up to 18% of eurozone workers are underemployed, meaning they would like to work more hours, or have temporarily left the labor force.

Some Dutch lawmakers weren't convinced. The ECB's stimulus might have made Mr. Draghi a hero in southern Europe, said one MP, but not in Holland.

"It's not my job to be a hero, just to pursue my mandate," Mr. Draghi responded. The ECB, he said, has done no more than other major central banks in the U.S., U.K. and Japan, which also launched major stimulus programs in recent years.

Mr. Draghi also highlighted the benefits of the ECB's policies for Dutch households. "As an export-oriented country, the Netherlands is currently benefiting from the recovery in other euro area countries," he said.

"You look remarkably calm for someone who issues EUR2.5 trillion out of thin air, especially when your chief economist says there is no Plan B," commented Lammert van Raan, a member of the left-wing Party for the Animals.

Other parliamentarians asked about the likely repercussions of a breakup of the eurozone. Mr. Draghi refused to be drawn into that discussion. "The euro is irrevocable," he said. "We don't want to speculate on things that have no probability of happening."

"You're saying there's zero probability?" said Renske Leijten, representing the left-wing Socialist party.

"Our policy has created 4 1/2 million jobs, that's the reality," retorted Mr. Draghi.

The Dutch lawmakers also had a parting gift for Mr. Draghi: a tulip, symbolizing the Dutch "tulip mania" of the 17th century that led to one of the first global financial crises.

Write to Tom Fairless at tom.fairless@wsj.com and Todd Buell at todd.buell@wsj.com

(END) Dow Jones Newswires

May 10, 2017 13:27 ET (17:27 GMT)