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The European Central Bank’s inner circle faced a push from heads of member states’ monetary authorities to drop the doom and gloom from its rhetoric and present a much more optimistic outlook on the eurozone’s economic prospects at its policy vote last month.
Accounts of the latest meeting, published Thursday, reveal the scale of the discord between president Mario Draghi and the heads of several other national euro-area central banks. Bundesbank chief Jens Weidmann has voiced this publicly, but people familiar with the conversation at the meeting say a number of others also voiced concerns.
The minutes themselves show that some on the governing council in March wanted the ECB to drop its commitment to cut rates again, should the recovery disappoint.
Mr Draghi and his chief economist, Peter Praet, came under attack at the policy meeting, held on March 9, over their plans to maintain a cautious attitude towards the economic recovery despite signs that the recovery was becoming stronger and broader.
Mr Praet acknowledged in opening remarks at the meeting that the balance of risks had clearly improved. But threats to growth coming from outside the region – coupled with political risks coming from within it – called for caution.
The governing council’s opening statement following the vote said that, while the outlook had improved, risks remained tilted to the downside. The council also kept its commitment to lower interest rates in place.
The minutes show that some members of the council wanted that commitment to respond more aggressively to be dropped.
“The view was put forward that removing the downward bias regarding interest rates would be in line with a gradual and cautious adjustment of the governing council’s forward guidance, in step with changes in the governing council’s assessment,” the minutes said.
“Keeping the governing council’s forward guidance well aligned with its evolving assessment was seen to underpin the consistency and credibility of the governing council’s communication, as both deflationary risks and associated market expectations of further rate cuts had largely vanished.”
Most on the council said it was “premature” to remove the commitment on interest rates. The council did, however, cut another promise – this time to use “all the instruments available within its mandate” to stave off deflation – from the statement.
The promise was removed as the threat of deflation had “largely disappeared”.
(This article has been amended to make it clear that the French and Spanish central bank representatives did not object to the core policy stance.)