The European Central Bank president faces an all too familiar problem in his final year at the helmby Paul Wallace / October 31, 2018 / Leave a comment
Mario Draghi’s tenure as president of the European Central Bank is drawing to a close. Appointed at the height of the euro crisis in 2011, his eight-year term expires in a year’s time. For a brief period, especially in 2017, the single currency area appeared to have escaped its woes, allowing the former Italian central banker a calmer end to his office than its tempestuous beginning. But now his final year at the helm of the ECB looks set to be anything but relaxed.
One worry is that the eurozone economy has been losing momentum after growing by 2.4 per cent in 2017. Though a canter rather than a gallop, this was the fastest for a decade. The euro area at last seemed to have put behind it the twin traumas of first the financial crisis that came to a head in 2008, and then the acute phase of the euro crisis in 2010-12. For once the European monetary union could boast higher GDP growth than America.
That bright picture has dimmed this year. Already slowing in the first half of 2018, the eurozone economy grew by a mere 0.2 per cent in the third quarter, a far cry from the 0.7 per cent that it managed in the final three months of 2017. Business surveys such as those of purchasing managers reveal a disappointing start to the fourth quarter, with an ebbing of output growth in October to its lowest for over two years according to IHS Markit, an information provider. Manufacturing is doing especially badly. The eurozone is suffering from lower demand for its exports, stemming from a slowing Chinese economy and trade tensions.
Despite the loss of economic momentum, the ECB is holding firm to the strategy for monetary policy that it set out in June. Speaking at the press conference after its governing council met on 25th October, Draghi reaffirmed that the central bank still anticipated ending quantitative easing—purchasing bonds by creating money—at the end of this year.
That has disappointed those calling for yet another extension of QE, which began in March 2015 and was originally supposed to end in September 2016. Yet even though the purchases (which have already subsided from a torrent of €80bn a month between April 2016 and March 2017 to a current dribble of €15bn a month)…