Pegasus Development AG

Future ECB-President Lagarde to continue Draghi’s accommodative policy stance

Frankfurt (Reuters) – Despite increasing warnings from German banks, the ECB will probably keep the cash gates wide open for a long time, even under its future president Christine Lagarde.  

The 63-year-old spoke on Wednesday at the European Parliament’s Committee on Economic and Monetary Affairs, where she argued for the continuation of Central Bank President Mario Draghi’s low interest policy. Yet, the banks protest vehemently against this accommodative monetary policy. “These low interest rates are ruining the financial system in the long run” warned Deutsche Bank CEO Christian Sewing. 

“The euro area economy faces some near-term risks,” said Lagarde. She noted that inflation in the euro area remained persistently below the ECB’s objective and that she therefore agreed with the ECB “that a highly accommodative policy stance is warranted for a prolonged period of time.” The former president of the International Monetary Fund (IMF) is to head the European Central Bank (ECB) in November and succeed Draghi , whose term ends after eight years. The French woman left open whether she is willing to support the economy even with drastic monetary policy measures. 

Even before Lagarde’s assumption of office, the ECB is heading towards further monetary easing due to the increased economic worries. According to insiders, the euro guards attending their meeting held on September 12 tend to adopt a bundle of measures. A reduction in the deposit rate of interest accompanied by easements for banks and a new change in the interest rate outlook are likely to be part of the package, as told to Reuters by insiders. New bond purchases are another topic under discussion. 


Warning voices came from the German banking industry. “In terms of the economy as a whole, a further cut in interest rates at the current level will fizzle out,” said Deutsche Bank CEO Sewing at a bank event in Frankfurt. “It will only push up asset prices and continue to burden savers.” According to him, Central banks will have little means left to effectively cushion a real economic crisis. Moreover, the penalty interest creates a competitive disadvantage compared to banks in the United States, where the key interest rate is currently between 2.00 and 2.25 percent. “As Deutsche Bank alone, negative interest for deposits will cost us a three-digit million amount this year,” said Sewing. “Extrapolated to four years, that’s more than two billion euros.” 

Another criticism came from Commerzbank CEO Martin Zielke: “I don’t think that this is a sustainable, responsible policy.” The chairman of the world’s largest asset manager, Blackrock, Larry Fink, sang from the same hymn sheet: “The negative interest rates harm the vast majority of consumers because they have their money deposited in bank accounts.”  

The ECB has held its key interest rate at a record low of 0.0 percent since March 2016. Banks have also had to pay penalty interest since 2014 if they park excess liquidity with the central bank overnight. The so-called deposit rate is currently minus 0.4 percent. 


The possible negative effects of monetary policy are an issue also for Lagarde. “We need to be mindful about their potential side effects and we have to take the concerns of people seriously,” she said. In addition, she announced that under her leadership the central bank would communicate its decisions even better. A review of the strategy, as pushed by other central banks such as the Fed in the USA or the Canadian central bank, is justified according to her. The last time this happened at the ECB was 16 years ago. In her view, the topic of climate change should also be at the top of the ECB’s agenda. “The primary mandate is price stability, of course. But it has to be embedded that climate change and environmental risk are mission-critical.” 


During her hearing, Lagarde also discussed Draghi’s famous speech in the summer of 2012, which, according to economists, he had used to decisively defuse the euro debt crisis at that time. At the height of the crisis, Draghi had announced that the ECB was ready to do whatever it takes to save the euro as part of its mandate. “I hope I never have to say anything like that,” Lagarde said. 

In part, her appearance was well received by German MPs. Lagarde wants to continue the ECB’s low interest rate policy and that is a positive sign, said SPD Euro-MP Joachim Schuster. “As long as many EU heads of state and government do not take on a much greater responsibility for the economy and the stability of the euro, we can be happy if the European Central Bank stays on course.” From the point of view of CSU Euro-MP Markus Ferber, Lagarde’s approach to better communicate the decisions of the ECB is a good thing. “Indeed, there is still room for improvement.”

„Diese Website verwendet Cookies – nähere Informationen dazu und zu Ihren Rechten als Benutzer finden Sie in unserer Datenschutzerklärung am Ende der Seite. Klicken Sie auf „Ich stimme zu“, um Cookies zu akzeptieren und direkt unsere Website besuchen zu können.“