© The Financial Times Ltd 2016 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
April 8, 2013 7:27 pm
Mariano Rajoy, the Spanish prime minister, has called for the European Central Bank to be handed more powers, highlighting renewed north-south political tensions about the bank’s role in battling the eurozone debt crisis.
“I think in Europe we must all ask ourselves whether the ECB should have the same powers as other central banks around the world,” the Spanish leader said at a press conference on Monday.
Mr Rajoy did not spell out what additional central bank powers he had in mind, but mentioned both the US Federal Reserve and the Bank of England as possible models. He also referred to the “very important” shift in stance undertaken by the Bank of Japan, which surprised markets with a huge monetary stimulus package last week.
Both the Fed and the Bank of England have engaged in quantitative easing, or printing money, to stimulate the economy. Although the ECB has cut interest rates to what is for it a record low, its main interest rate of 0.75 per cent is higher than those in the US, Japan or the UK, which critics say, puts the region at a further disadvantage.
The Spanish leader said Europe needed the same “instruments that other countries have” and voiced frustration over Europe’s failure to progress more quickly towards a banking union.
His call reflects not just hope for a change in ECB policy but also the growing frustration in Spain and other European countries with the hardline position of countries such as Germany and the Netherlands.
The independent ECB has very wide-ranging powers, but must justify any non-standard monetary policy measures it takes as being within its inflation-fighting mandate, a key condition of which is that it should not engage in “monetary financing” – printing money to help a member state.
It consistently faces strong criticism from Germany, the biggest eurozone economy, when considering unorthodox measures, such as the so-called Outright Monetary Transactions bond-buying plan announced last September. That successfully calmed financial markets, but has yet to be deployed.
Speaking last week, Mario Draghi, ECB president, said there were clear limits to what the bank could do, although it was thinking about policies “consistent with our mandate” to ease the extreme differences in the cost of loans faced by companies in different eurozone countries.
Spanish officials would like Germany and other surplus countries in the eurozone to run a more expansionary policy, in order to help struggling economies in the crisis-hit countries to escape recession. They complain that Spanish and Italian companies still have to pay much higher interest rates on their debt than their competitors in northern Europe, and warn that such “asymmetries” are undermining the foundations of economic and monetary union.
Spanish officials would also like the eurozone to make faster and more decisive progress towards a banking union – which they hope would help to insulate their domestic economy from fresh market turmoil. Mr Rajoy on Monday voiced fresh concern over the continuing disagreements that bedevil the project, arguing that speedier agreement could have prevented the recent crisis in Cyprus: “If there had been a banking union in Europe... what happened in Cyprus would not have happened,” he said.
The aftermath of the Cypriot bailout has highlighted fresh political tensions inside the eurozone, with Spanish officials voicing sharp displeasure with the public stance taken by Jeroen Dijsselbloem, the Dutch finance minister who chairs the meetings of eurozone finance ministers. Mr Dijsselbloem said that the ‘bail-in’ of Cypriot account holders could be repeated in future European financial rescue packages.
Copyright The Financial Times Limited 2016. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in