ECB: emotional press conference expected at Draghi-farewell

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DThe first question that Mario Draghi addressed at his first press conference as President of the European Central Bank (ECB) was a classic. If the Council's decision was unanimous, on November 3, 2011 the new supreme holder of the euro was asked.

The ECB had just lowered its key interest rates by 25 percentage points under Draghi, rejecting the previous two key rate hikes of predecessor Jean-Claude Trichet. "Yes, the decision was unanimous," Draghi replied at the time.

Eight years later, the Council cannot question this unanimity. At the farewell of the 72-year-old Italian, the central bank's most important decision-making body is deeply divided. Several national central bankers distanced themselves immediately after the September decision from the measures taken. Above all, the resumption of controversial ECB bond purchases without a clear end date divides the mind.

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Frustrated by the renewed massive easing, the German director of the Bundesbank Sabine Lautenschläger soon presented her resignation. Draghi leaves a pile of shit inside. And many observers looking from outside the ECB and its monetary policy, the verdict of Draghi's years and his last great coup, which promises a sort of monetary policy that he buys infinitely, all 39; other than pleasant.

According to many details, Draghi will probably be harassed during his last major ECB press conference in Frankfurt, as he sees his monetary legacy. For the moment, the monetary policy of the coming months is destined to fade into the background in view of the planned retrospective.

A rare emotional poker player

A "farewell party on the Psycho-Couch", expects Carsten Brzeski, chief economist of ING Germany. Draghi is expected to make a "strong and emotional" appeal in favor of the measures adopted last. "The shock waves of the September resolutions still echo in the corridors of the ECB building," Brzeski said.

In particular, the central bank lowered the deposit rate and a new edition of the 20 billion euro monthly bond purchases decided to start in November. In addition, facilities for banks have been launched.

Source: WORLD infographic

Draghi did not appear in his eight-year term as a particularly emotional head of the central bank. The former investment banker has bluffed on many occasions more as a poker player to lead the financial markets in the desired direction. Only twice has Draghi become visibly emotional during the numerous press conferences.

One was in the spring of 2015, when a Femen activist jumped on Draghi's lectern and rained pieces of paper on the ECB president completely indignant. The other time was goodbye to former ECB vice-president Vitor Constancio in April 2018, when Draghi uttered an unexpectedly emotional farewell.

"Whatever it takes"

"Most of the press conference will be goodbye to Draghi," says Frederik Ducrozet, strategist at Pictet Wealth Management. "This could be an exciting time for him." As a result, observers will rather pay attention to tears this time than to reflect on the indications for the further course of ECB monetary policy.

But Draghi could also use his last ECB meeting as president to justify the controversial September decision. The inflation rate in the euro area has recently fallen to 0.8 percent and has therefore moved away from the official target of two percent. At the same time, the latest economic indicators point to a significant slowdown in the economy in the euro area. The industry is already in recession.

Source: WORLD infographic

It is likely that Draghi reiterates this justification. And it can also indicate success. Not only for his famous "Whatever it takes", a promise he made to tame the euro debt crisis and keep the monetary union together. But also because eleven million additional jobs were created in the euro area during his tenure.

Draghi could therefore point out that politics has often left him in trouble. The chief strategist of the banking house Merck Finck, Robert Greil, then assumes that the head of the ECB will ask for a last time the support of the states of the euro at his departure: "Mario Draghi will draw a positive conclusion of his mandate of Eight years, and he will once again vigorously ask for tax measures, especially from Germany. "Greil, however, does not believe that the federal government will answer calls this time.

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Draghi never really warmed up with Germany, probably because he had many critics in this country. He was named "counterfeiter" by the former CSU secretary general Alexander Dobrindt, an "incendiary" Frank Schäffler of the FDP, the BILD newspaper, which appears as WELT in the media company Axel Springer, charging him as a vampire count Draghila , which savers say,

Again and again, Draghi informed the Germans that it was not the role of the central bank to provide savers with a reasonable interest. Germans should simply invest their money more intelligently. Unforgettable, like Draghi obviously annoyed by the head of the Bundesbank Jens Weidmann publicly as an exposed non-sager. "No to nothing" was not a solution, he said in view of the Bundesbank.

Only from time to time Draghi could see how much the constant accusations of Germany bothered him. For example, at the Sintra central bank conference, when he indirectly accused the Bundesbank of promoting populism. Now, in his last meeting, he has another chance to read the Levites to the Germans.

Looking for price stability

However, Draghi did not achieve his self-imposed goal in his original mission of keeping prices stable over time. During his tenure, the inflation rate averaged 1.2 percent, below the ECB's self-imposed target of "close but less than two percent".

Almost no expert expects that inflation will reach this goal in the coming years. Inflation expectations for the next decade have recently dropped to 1.2 percent, although Draghi has pumped trillions of liquidity into the markets to fuel inflation. This becomes visible in the ECB balance sheet. During his tenure, the volume doubled to 4.7 trillion euros.

Source: WORLD infographic

During his tenure, Draghi repeatedly tried to adjust the definition of price stability. Last time was the case this summer, when it surprisingly announced that the goal had to be interpreted symmetrically. A phase with inflation that is too low could therefore be followed by a period of more than two percent. The main thing that inflation is in the long term at around two percent.

It will be one of the most important questions at the beginning of the term of Draghi's successor, Christine Lagarde. After the extensive September package, the scope for Draghi's successor is low. Even previous purchases of bonds, which were significantly larger, have barely increased prices. The current modest bond purchase program will certainly not be able to do much.

In order to get points in this sense, the ECB should theoretically buy significantly higher volumes. According to the calculations of economists, at least 80 billion euros per month should be considered. In practice, however, not many titles are available in some countries of the euro. And above all, the limit on prohibited state funding would eventually be exceeded.

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If the small bond purchase program does nothing and a large program does not seem possible, new ideas must arise. Some board members prefer a lower inflation target, others an expansion of the buying universe. The former French finance minister and head of the IMF could try to score with diplomatic ability and mediate between the camps.

Their task will be to reintegrate the controversial Council and to provide the ECB with a reform of its strategy for the future. If he succeeds, Lagarde can also say, when asked unanimously: "Yes, that decision was unanimous."

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