Interview with ECB President Mario Draghi 'We Couldn't Just Sit Back and Do Nothing'
Part 2: 'We Have Decided Not to Give Exact Figures For Our Program'
SPIEGEL: Experience shows otherwise. If you artificially lower interest rates, it makes it easier for governments to become indebted and decreases the pressure for reform.
Draghi: High interest rates are the most significant source of pressure for a government resisting reform, I agree with you there. This is exactly why we insist on adherence to strict conditions. Moreover, we do not want to completely eliminate differences in interest rates between countries. We will only intervene if the differences become excessive.
SPIEGEL: Many experts doubt that you can make a clear distinction in this regard.
Draghi: We would disagree. There are models and indicators available that will help us to make an informed judgment.
SPIEGEL: When you announced your program, interest rates in Spain, for example, stood at 6.5 percent. What proportion of this was speculative?
Draghi: I will not tell you that. We have decided not to give exact figures for our program that we could later be pinned down to. What I can tell you is that a good analysis will provide you with the necessary indications regarding at which point the differences give cause for concern.
SPIEGEL: We fear that you are getting entangled in hopeless political discussions with the European governments. In order to put the monetary union on firm footing, you are in favor of, for example, greater centralization of economic and financial policy. Up to now we have seen little of this.
Draghi: This is not how I see it. Governments are on the right path. They have committed themselves to transferring more competencies for budgetary and financial policy to the European level. They need to make the necessary decisions on this at their summit meeting in December.
SPIEGEL: Up to now, governments have only been ready to concede greater powers to the Commission regarding the control of their budgets. The actual decisions will continue to be taken at the national level, however.
Draghi: The governments have made decisions that would have been inconceivable even one year ago. This is progress, but it is not enough.
SPIEGEL: Why not?
Draghi: If you want to restore confidence in the euro area, you need rules. But that is only the first step. You also need to ensure that the rules are adhered to. This is what was lacking in the past and what governments need to work on.
SPIEGEL: German Finance Minister Wolfgang Schäuble has proposed giving the European Commissioner for Economic and Monetary Affairs a direct say in national budgets. What do you think of that proposal?
Draghi: I am fully in favor of it. Governments would be wise to seriously consider it. I firmly believe that, in order to restore confidence in the euro area, countries need to transfer part of their sovereignty to the European level.
SPIEGEL: But this is precisely what many governments are unwilling to do. Why is there so much resistance?
Draghi: A lot of governments have yet to realize that they lost their national sovereignty a long time ago. Because, in the past, they have allowed their debt to pile up, they now need the goodwill of the financial markets. That sounds like a paradox, but it is nonetheless true. Only when the euro area countries are willing to share sovereignty at the European level will they gain sovereignty.
SPIEGEL: The second measure with which you wanted to place the monetary union on a firmer footing was the establishment of a single supervisory mechanism (SSM), with the ECB at the helm. However, it will now not be up and running on Jan. 1, 2013, as planned. Are you disappointed?
Draghi: Not at all. What is more important is that the SSM works well, not when it starts. Otherwise, the reputation and independence of the ECB are at risk.
SPIEGEL: Why do you think that the ECB will do a better job of supervising banks than the national authorities that have been responsible for doing it until now?
Draghi: It is not that we want to replace the national supervisory authorities; on the contrary, we want to work closely with them. However, they need to be independent of their governments in their assessment of the problems. In the past, problems in the banking sector have been hushed up time and again.
SPIEGEL: Like in Spain
Draghi: I am not going to mention any names. However, I am certain that we will be able to act more independently and quickly if Frankfurt is at the heart of the decision-making.
SPIEGEL: But that means that the independence of your monetary policy will come under threat. Will you still be able to take an impartial decision on interest rates if there is the danger that major banks will be pushed into financial ruin?
Draghi: I am aware of the risk, which is why there must be a strict separation between the two areas at the ECB. The Governing Council of the ECB should assign most of the supervisory tasks to an independent committee composed primarily of supervisors.
SPIEGEL: That sounds modest, because you now actually have more responsibilities than any other central banker before you. You are the biggest creditor of many euro area countries; you are the chief banking supervisor and are designing a new structure for the euro area alongside the President of the European Council, Herman Van Rompuy. Would it be wrong to call you the most powerful man in Europe?
Draghi: That is certainly not the way I see myself. With regard to the banking union, for example, we are only providing technical assistance because we were asked to.
SPIEGEL: You are in the news after every EU summit along with world leaders. Are you trying to say that you don't have any influence?
Draghi: I can see how I may give this impression, but I am well aware that I am a central banker without a political mandate, who only acts together with the Governing Council of the ECB.
SPIEGEL: In Germany, people have several reservations about your crisis policies. Were you surprised to receive so much criticism?
Draghi: I had the opportunity of a very deep and wide-ranging exchange of views with members of the Bundestag last Wednesday. My impression was that I was able to explain a number of issues, in particular how the measures comply with our mandate to safeguard our independence and to ensure price stability in the medium term.
SPIEGEL: This fear stems from historical experience. Germans have learned that, if central banks flood the markets with money, this always leads to inflation.
Draghi: We have to take these fears very seriously. But the correlation is not so simple. In some cases, such as in the Weimar Republic, printing money caused inflation. But in other cases, proactive central bank action did not.
SPIEGEL: You mean the Federal Reserve System's decision at the start of this millennium to drastically reduce interest rates, a policy which contributed to the price bubble on the housing market and the financial crisis of 2007-2008. How do you intend to rule out something similar repeating itself in Europe?
Draghi: We are committed to safeguarding price stability and avoiding systemic asset bubbles. So far we have seen some rising prices in a few asset markets at the local level. Such phenomena must be dealt with regionally by the relevant political and supervisory authorities, for example by asking banks to hold more capital against their real estate exposure.
SPIEGEL: What would you say to German taxpayers who fear inflation?
Draghi: At present I do not see any risks to price stability. The ECB remains committed to safeguarding price stability as it has always done in the past. We firmly expect the inflation rate in the euro area to fall next year to below our target of close to 2 percent.
SPIEGEL: At the start of Monetary Union, Germans were promised that the ECB would behave like a second Bundesbank, the country's central bank. Many people here now speak of a new Banca d'Italia, which tolerated double-figure inflation rates in the 1970s.
Draghi: I consider such accusations, to put it mildly, inelegant. For two reasons: in the 1970s, the Banca d'Italia was not independent. Today, the situation is completely different. But there is also a personal reason. Because of inflation, my family lost a large part of its savings at that time. You can therefore rest assured that I am personally and not only professionally committed to delivering price stability.
SPIEGEL: Two German members of the ECB's Governing Council have stepped down in protest, and the head of the Bundesbank Jens Weidmann openly opposes your policy. Does that not make you think?
Draghi: Of course. That reflects concerns which we incorporate into our decisions. You can be assured that, in taking measures, we stick strictly to our mandate.
SPIEGEL: Your former colleague Jürgen Stark, who resigned, sees it differently.
Draghi: His reasoning is not shared by the Governing Council of the ECB.
SPIEGEL: But the fact is you are doing things that would have previously been inconceivable.
Draghi: We are also currently in a crisis that was previously inconceivable. It is therefore not very helpful to compare our measures with the past. When we speak of the Bundesbank culture, we mean a culture of independence and price stability. I am deeply attached to both principles and can assure you that each member of the Governing Council is just as deeply committed to delivering price stability in total independence and fully in line with the mandate of our founding fathers.
SPIEGEL: In a recent interview with SPIEGEL, Mr. Weidmann warned that central bank financing could become addictive, like a drug.
Draghi: That risk exists, and we have it in mind. But central bank financing can also be helpful, like medicine. And that should also be kept in mind.
SPIEGEL: How long can these controversies between you and Mr. Weidmann continue?
Draghi: I would like certain discussions to proceed in a more controlled way. Mr. Weidmann and I still have a great deal of understanding for one another. We have the same goal and our differences of opinion over the correct instruments are not insurmountable.
SPIEGEL: Mr. Draghi, thank you for this interview.
Interview conducted by Michael Sauga and Anna Seith
- Part 1: 'We Couldn't Just Sit Back and Do Nothing'
- Part 2: 'We Have Decided Not to Give Exact Figures For Our Program'