Thursday 21 April 2016 2:21 pm

Super Mario comes out fighting to defend European Central Bank (ECB) against German attacks, negative interest rates and misfiring bazookas

Mario Draghi has hit back against critics of the European Central Bank (ECB), reiterating that nothing has been ruled out in its fight to stave off deflation in the Eurozone and wading into the Brexit debate in a defiant public appearance this afternoon.

There was no change in the announcements from the ECB on interest rates and its bond-buying quantitative easing programme, but that didn't mean it was a quiet day over in Frankfurt.

Looking down …

Interest rates will remain "at present or lower levels for an extended period of time," Draghi said, as he defended the ECB's policy of negative interest rates saying there was clear evidence it was working to support lending to both businesses and households in the Eurozone.

"Our policies work … they are effective. If warranted, the ECB will act by using all the instruments available in its mandate. It is crucial to ensure the very low inflation environment does not become entrenched," Draghi said.

The clear message that interest rates could go even lower stood in contrast to Draghi's message last month that he believed interest rates were as negative as they could go.

… Going up?

Draghi said the idea of helicopter money – where citizens are given a one-off cash sum to provide an immediate bolt to the economy – was "fraught with operational, legal and institutional difficulties".

He refused, however, to rule out that the ECB would give it a go anyway, saying, "the bottom line is that we have never discussed it".

Listen here, Germany

The president also directly responded to criticisms from German politicians that negative interest rates were causing domestic instability. Sigmar Gabriel, vice chancellor of Germany, recently said the ECB was stepping outside its mandate and had become “a kind of faux economic government”.

Finance minister Wolfgang Schauble warned Draghi that ultra-loose monetary policy could “ultimately end in disaster” and said that ultra low-interest rates policies were “50 per cent” responsible for the rise of the right wing Alternative for Germany party.

Firing a warning shot at Germany to stay out of the ECB's business, Draghi said, "anytime the credibility of a central bank is percieved as being put into question, the result is a delay in the achievement of its objectives and, therefore, the need for more policy expansion".

"We obey the law, not the politicians," he blasted.


Draghi also waded into the EU referendum debate, when asked for his take on the debate and what a vote to leave would mean for the British and European economies. He said:

Unequivocally, we view the participation of the UK in the EU as mutually beneficial – and we will continue to say so in the coming weeks. Certainly, the discussion about the possibility [of Brexit] has already produced some quite significant consequences on the markets, for example, a depreciation fo sterling.

We do expect a continuation of market volatility certainty until the referendum … probably even after the referendum.

Despite the warning, Draghi added: "Is [the referendum] enough to endanger economic recovery in the Eurozone? The assessment of [ECB] staff is that the risk of this happening is very limited."

Market mania

Draghi was forthright in his conviction that the ECB would keep its monetary policy as loose as possible for "as long as needed". In theory, such a staunch commitment from the head of the central bank should have sent the euro plunging.

Instead, in the curious world of negative interest rates and quantitative easing it actually surged to around $1.14 before falling back to where it started at $1.13 once Draghi had finished speaking.