The Legacy
It will not be a far fetched statement to say that Mario Draghi, the current president of the European Central Bank (ECB), saved the Euro. He saved the single currency of the eurozone by introducing three keywords: “whatever it takes”. The upcoming meeting on Thursday will be his last meeting as the president of the ECB. Apart from the fact that he saved the Euro, another significant accomplishment is employment growth in the euro-zone, 11 million jobs. He can certainly be proud of his achievements at the central bank. However, the area of the eurozone which didn’t perform well under his tenure is inflation. It has been languishing, and unfortunately, the situation isn’t getting any better despite his last-ditch back in September to boost price stability—inflation.
The below chart sums up Draghi’s performance as a president of the ECB.
Shouting Out Loud
A major reason that inflation has been feeble in the eurozone is that the monetary policy has its limits. You really need fiscal policies to move inflation and in order for this to happen, you need individual countries to loosen their purse. So far, Draghi has been speaking in shadows when it comes to fiscal policies. But given that this is his last meeting, we do expect him to single out the countries which need to open the taps.
We are speaking of Germany, it has the ability to have the most amount of impact on the fiscal front. Having said this, we do anticipate that unless the euro-zone enters into a deep recession–we aren’t too far from that–his call for action is more likely to be unheeded.
Don’t Expect Any Details
Given the firework we have seen at the recent ECB meeting, the president introduced more negative interest rates along with continue support for the QE program meeting —a large number of governing council members were unpleased on the restart of quantitative easing—we do not expect any further details from the ECB on this. This is despite the fact that since the announcement of the new package, Germany has seen its worst industrial slump since the financial crisis.
The Upcoming President
Investors are going to be eager to hear the views of the upcoming president of the ECB, Christine Laggard. She needs to change the status quo to some extent to deliver on the bank’s mandate: price stability –inflation. Changing the status quo means altering the way the bank sets the policy for the eurozone and its definition of price stability.
To conclude, we aren’t expecting much of firework from this meeting. Draghi is going to ask governments that they need to step up the game to improve inflation and only that can improve inflation. Investors are going to be more focused on the future path of the ECB under the helm of a new president.
