European Central Bank (ECB) chief Mario Draghi yesterday hit back at claims that new monetary policy measures would reduce the need for governments to undertake reforms, ultimately harming growth prospects.
“Do you really think a high level of interest rates would form an incentive for a government to improve its education system, or judiciary, or electoral system?” he said, after giving testimony to European Parliament.
“Growth is gaining momentum. The basis for the economic recovery in the euro area has clearly strengthened. This is due to, in particular, the fall in oil prices, the gradual firming of external demand, easy financing conditions driven by our accommodative monetary policy, and the depreciation of the euro.”
The ECB began a programme of quantitative easing this month – buying government debt with new money – in a bid to revive growth and fend off deflation. Draghi reiterated that the programme would carry on until at least September 2016, implying a value of at least €1.1 trillion (£0.81 trillion). But critics say it could reduce the incentive to reform.
Draghi also played down accusations that the ECB is somehow blackmailing Greece. The ECB has removed a waiver that allowed it to accept Greek government debt as collateral for loans, meaning that Greek banks have to rely on the more expensive funding from the Bank of Greece. It has even suggested this funding could be at risk if Greece does not strike a deal on its debt with its Eurozone partners – an event that would likely force Greece out of the currency union.
“The ECB has €104bn of exposure to Greece. This is equal to 65 per cent of Greek GDP, which is the highest exposure in the Eurozone...what sort of blackmail is this?” Draghi said. “We have not created any rule for Greece, rules were in place and have been applied.”