Why Mario Draghi’s success could galvanize critics

PARIS — Call it the loneliness of the central banker. As he gets closer to the moment when he can claim “mission accomplished,” European Central Bank President Mario Draghi is likely to face increasing criticism of his policies.

According to the ECB’s new economic forecasts, released Thursday, inflation in the eurozone could reach 1.7 percent in 2020 — close to the central bank’s near 2 percent target that it has been trying in vain to reach since 2013. As other institutions such as the International Monetary Fund and the OECD did in recent weeks, the ECB also upped its forecast for GDP growth in the eurozone to 2.3 percent next year and 1.9 percent in 2019.

The ECB’s latest governing council meeting wasn’t expected to make any policy changes after it decided in October to shrink but extend the so-called quantitative easing, or QE, program. On Thursday, Draghi simply reiterated that, growth notwithstanding, the ECB was focused on boosting inflation — which it has so far failed to do.

His main message was the same as two months ago: Just because the economy has recovered doesn’t mean our job is over.

At its October meeting, the ECB decided to cut by half its monthly bond purchases to €30 billion from January, adding that they would end in September — unless the governing council deemed it necessary to continue longer. It also announced that interest rates, currently at -0.4 percent for deposits, would remain negative well beyond the time the bond purchases would have halted. And it pledged to keep the same amount of bonds on its balance sheet, replacing them at maturity, for an indefinite period.

But the ECB president, who has now entered the last two years of his mandate, could face in coming months the paradoxical situation of being criticized for pursuing policies that have succeeded — or are about to — to the point that his detractors want to stop them.

The discussion of the ECB’s 25-strong governing council on Thursday showed “increasing confidence in the convergence” of inflation toward its “below but close to 2 percent” objective, Draghi said.

But the hawkish wing of the governing council, led by German central bank chief Jens Weidmann, may seize on that as a proof that now is the time to get more aggressive in unwinding the loose-money policies with which Draghi has been associated ever since he took over in 2011.

On top of the usual criticism from the traditional hawks, Draghi could also face increased pressure from those who feel that it is time the ECB stopped relying strictly on asset purchases to guide the eurozone economy back to “sustainable and self-sustained” inflation, to use his own words.

ECB executive board member Benoit Coeuré, a constant Draghi ally in the last five years, has defended the view in ECB meetings that the central bank should better explain the conditions under which it might raise interest rates in the coming years.

A lot of the criticism Draghi will face in coming months also has to do with the fact that many candidates are already campaigning behind the scenes to succeed him.

Behind that technical debate is the unease some governing council members have always had about what they feel is the dwindling credibility of the ECB’s QE program as it moves forward.

Coeuré, for one, indicated in an interview with Handelsblatt in November that he thought bond purchases should end after the extension announced in October.

A major problem is that the ECB is running out of bonds to buy under the limits it set itself to avoid the type of “monetary financing” of governments banned by the eurozone’s founding treaty. To that effect, it cannot buy more than 33 percent of the debt of a given government — and never more than 33 percent of a specific bond issue.

“It has become more difficult to argue that this can really continue for as long as necessary beyond September 2018,” said Gilles Moëc, Europe economist at Bank of America Merrill Lynch in London.

A lot of the criticism Draghi will face in coming months also has to do with the fact that many candidates, notably Weidmann, are already campaigning behind the scenes to succeed him.

Draghi himself may remain unfazed as his term cannot be renewed, which gives him the freedom he needs. But that won’t stop his critics from raising their voices in the next months.

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