DRAGHI’S REPORT CARD
In the 20th Anniversary of the Euro
Considering the main objective of central banks as ensuring monetary stability in the management of the current global crisis, whose significant effects are still felt, we can say that ‘Mario Draghi is generally successful despite the low growth’.
Having taken office as the Head of the Italian Central in 2006, Mario Draghi, nicknamed “Super Mario”, was appointed President of the European Central Bank (ECB) to take over from Jean-Claude Trichet on November 1, 2011 and will leave office to his successor on October 31, 2019.
He has not raised interest rates since he became President of the ECB, and he will be remembered as one of the few central bank presidents who did not raise interest rates due to the practice known as negative interest in finance literature.
In order to stimulate the real sector with the global economic crisis, monetary expansion policies led to excess savings and low interest policies. The monetary expansion policy under the leadership of Ben Bernanke, the President of the Federal Reserve (FED) at that time, was followed by the ECB and BoJ (Bank of Japan).
FAST VALUE LOSS IN EURO
Let’s look at Draghi’s report for the main macroeconomic indicators, who has shaped the world’s most powerful currency, the Euro, after US Dollar for the last eight years, and generally adopts an approach parallel to but more conservative than FED’s policies.
As a global power, the effect of the crisis, which started in the US and influenced the entire world, was felt in the Eurozone substantially, although the Euro is not a substitute for the dollar yet. Following the rapid depreciation of 20132014, the euro was seen to have gained stability against the dollar at 1.10-1.20.
SUSTAINED NEGATIVE INTEREST SINCE 2014
Draghi applied the monetary tightening policy, which was especially initiated by the FED, in the Eurozone. Draghi has also sustained since 2014 the policy known to be negative interest and used especially in economies with high savings to shift the money from the financial sector to the real sector in order
Since he became President of the European Central Bank, Mario Draghi has been referred to as one of the few central bank presidents who do not raise interest rates due to the practice known as negative interest in the finance literature.
to increase economic growth, and often to express below zero interest due to the banking sector costs. . Currently, this rate is -0.4 percent in the Eurozone.
However, Draghi is also subject to criticism because both FED ended the monetary tightening and continued its zero-interest policy despite the low growth in the Eurozone.
LOW GROWTH CRITICISM TO DRAGHI
The most important criticism against Draghi is the low growth. The fact that social conflicts have increased and the nationalism tendencies started to give shape to politics especially in Central and Eastern European countries, which are not happy about this situation, led the future of the union to be questioned following the Brexit process.
ITALIAN CRITICISM TO THE CONSERVATIVE INTEREST POLICY
Despite lower Eurozone growth and shrinkage in demand, the uptrend in inflation, though at a low pace, caused Draghi’s conservative interest policies to be criticized by the Central Bank of Italy, which he had previously presided.
While the unemployment rate in the eurozone has steadily declined
from 12 percent to 8 percent since 2014, it is known that the rate of youth unemployment in Greece, Portugal, Italy, Spain, Central and Eastern Europe is above 20 percent.
SUCCESSFUL DESPITE LOW GROWTH
In the 20th anniversary of the Euro, Draghi, who led the last 8 years of the currency, is considered to be successful in general terms despite the low growth, if the main objective of the central banks in managing the current global crisis is to provide monetary stability.
While the ECB’s stable behavior is considered to be have a big share in managing the risk, the expansionist policies of the markets, concerns about economic growth, US-China trade war, Brexit uncertainty and increasing nationalism and social conflicts will be the determinants of the coming period.