FRANKFURT, Germany – The European Central Bank left its policy mix unchanged at President Mario Draghi’s last meeting on Thursday, amid tensions among top ECB officials over how to respond to the region’s economic slowdown.
The ECB’s decision last month to cut interest rates further below zero and restart a €2.6 trillion ($2.9 trillion) bond-buying program have soured the final weeks of Draghi’s eight-year term, which ends on Oct. 31.
The ECB is seeking to stabilize a eurozone economy that has been hurt by international tensions ranging from trade wars to Brexit. But its September decision was opposed by seven members of the bank’s rate-setting committee, including all four from the region’s two biggest economies, Germany and France. The ECB’s top German official, Sabine Lautenschläger, resigned last month after opposing the decision.
At their October meeting, officials left the key interest rate at minus 0.5%, and stuck to their plan to start buying €20 billion a month of mostly government bonds from November. They pointed to further signs of a protracted economic slowdown that could become more severe if trade disputes intensified.
“This slowdown in growth mainly reflects the ongoing weakness of international trade in an environment of persistent global uncertainties, which continue to weigh on the euro-area manufacturing sector and are dampening investment growth,” Draghi told reporters.
At Draghi’s last news conference, which starts at 8:30 a.m. ET, the departing ECB chief is likely to face questions about the bank’s internal divisions – and his legacy. Answers about coming policy steps will likely need to wait for the incoming president, Christine Lagarde.
Draghi won widespread praise during an eventful eight-year term for a series of bold policy moves that helped to end the eurozone’s debt crisis and set the currency union on a path to growth. The region’s unemployment rate has fallen to a near-record low of 7.4%, and the euro weakened by around 20% against the dollar, helping to support eurozone exports.
But Draghi’s aggressive policies and aloof style increasingly grated with key constituencies, especially in Germany. German officials and citizens are deeply skeptical of the ECB’s easy money, which they worry hurts cautious German savers while subsidizing heavily indebted governments in southern Europe.
In a blistering editorial on Thursday, Germany’s mass-market Bild newspaper demanded back a Prussian helmet it had awarded to Draghi near the start of his term in recognition of his apparently German qualities.
“The only thing left of his good name in Germany is that it is on euro bills,” the newspaper wrote. The ECB is sitting on a “ticking time bomb” as a result of its purchase of trillions of euros of government debt, it said.
Italian government bonds returned 77% during Draghi’s term as a result of the ECB’s large-scale bond purchases, more than any other eurozone sovereign bond, according to research by Deutsche Bank. German government bonds returned only 26% over the period. The Euro Stoxx 600 index rose 121% over eight years, lagging large overseas peers like the Nikkei and S&P 500, which rose 198% and 191%, respectively.
Analysts expect the ECB to remain on pause for many months, a signal that it has largely run out of ammunition. Even allies on the ECB’s rate-setting committee say that Draghi could have done more to ensure his rate-setting committee was cohesive.
Ironically for a leader who helped to draw a line under Europe’s debt crisis, Draghi leaves office calling on eurozone governments, especially Germany, to increase their debts to support growth.
Still, in an apparent olive branch to the ECB, Germany’s government on Wednesday nominated a pro-European university professor, Isabel Schnabel, to the open board seat liberated by Lautenschläger. Analysts said Schnabel could help to rebuild bridges between the ECB and Germany during Lagarde’s term.