Published August 29, 2012
The European Central Bank must employ "exceptional measures" at times to fulfil its mandate of delivering stable prices, ECB President Mario Draghi wrote in an opinion piece on Wednesday aimed at calming German angst about the bank's policy course.
The ECB is drawing up a new bond-buying plan to lower the borrowing costs facing Spain and Italy, which Draghi is expected to detail after a September 6 policy meeting. Germany's Bundesbank - highly respected by German voters - opposes the plan.
Draghi wrote his opinion piece in German weekly Die Zeit after Bundesbank chief Jens Weidmann told magazine Der Spiegel the ECB bond-buying plan verged on the taboo for the bank of outright financing of governments.
Juergen Stark, a former ECB chief economist, piled on the German resistance in another newspaper interview on Tuesday, saying the ECB's policy course meant it was being politicised and would ultimately no longer be able to deliver stable prices.
Draghi sought to dispel those concerns.
"The ECB will do what is necessary to ensure price stability. It will remain independent. And it will always act within the limits of its mandate," the Italian wrote. "The ECB is not a political institution."
The independence of the ECB and the Bundesbank is highly prized in Germany, where the politicisation of monetary policy led to hyperinflation in the 1920s - an experience that still scars the national psyche today.
"Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools," Draghi, adding that the ECB's monetary policy is not transmitted evenly when financial markets "are fragmented or influenced by irrational fears".
"We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens. This may at times require exceptional measures," Draghi wrote in the article, released in English by the ECB under the title: "The future of the euro: stability through change".
ECB policymakers are posturing over the shape of the new bond-buying program ahead of their policy meeting on September 6.
ECB policymaker Joerg Asmussen, also a German, sought to assuage Weidmann's concerns about the new programme on Monday, saying the plan would ensure countries whose bonds the ECB buys do not soft-pedal on reforms.
The ECB said on Tuesday Draghi will not attend the annual Jackson Hole meeting of central bankers at the end of this week due to a heavy workload as he gears up for the September 6 meeting.
German Chancellor Angela Merkel gave her tacit support to Draghi on a trip to Canada earlier this month and reiterated in a weekend interview that she believed the ECB's policies were in line with its mandate to ensure stable prices in the bloc.
Weidmann's predecessor as Bundesbank chief, Axel Weber, quit last year in protest at the ECB's previous, now dormant bond-buy plan. Stark followed him out of the door. Weidmann has indicated, however, he has no plans to resign.