Mario Draghi

Never Give Up

Mario Draghi is a determined man.
  • Why it matters

    Why it matters

    The suggestion by ECB President Mario Draghi that the central bank would continue to relax monetary policy triggered a bounce in stock markets.

  • Facts


    • The oil price has declined by 40 percent since the ECB’s December meeting.
    • The ECB is keeping the base rate unchanged at 0.05 percent.
    • The DAX gained 2 percent When Mr. Draghi said that he was keeping all options open.
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Never give up. It was once the motto of Winston Churchill. Now Mario Draghi, president of the European Central Bank, is making the former British statesman’s principle his own.

“We don’t give up,” were Mr. Draghi’s final words at the ECB’s latest press conference Thursday in Frankfurt. Unlike Churchill, Europe’s most powerful central banker is not waging a war. But his words show that the situation in the 19-nation euro zone remains serious, and that Mr. Draghi is determined to do something about it.

Once again, the Italian is raising high expectations with his words, and yet the ECB could not bring itself to take any action on Thursday.

In comparison to its last meeting in December, there is a significantly smaller anticipated increase in inflation today, Mr. Draghi told the assembled press. For that reason, he added, the ECB will review its measures to date at the next meeting on interest rates. He insisted there were “no limits” on deploying the central bank’s remaining tools to ease monetary policy.

The ECB head painted a gloomy picture, noting that there is growing economic uncertainty in emerging economies, while the financial markets are becoming more volatile and the situation is further complicated by geopolitical risks.

All of this has had its effect on the euro zone, where inflation is falling significantly short of the predictions of central bankers. The data on which the ECB economists based their last inflation estimates, which form the basis for decisions on monetary policy, are substantially outdated. The oil price alone has declined by 40 percent since the December meeting.

The inflation forecast is significantly lower today than it was in December, Mr. Draghi acknowledged. The central bank is actually targeting inflation of “less than but close to 2 percent.” In December, inflation was only 0.2 percent, and it could decline further as a result of the collapse in oil prices.


Inflation in the Euro zone ECB-01


Nevertheless, the ECB is still betting on the power of words, at least for now. The ECB’s key interest rate, its refinancing rate, remains unchanged at its historic low of 0.05 percent. And the monetary watchdogs also did not adjust the two other interest rates on Thursday.

Nor did Mr. Draghi say that the central bank would expand its massive and controverisal bond-buying program, but that could change soon. Mr. Draghi repeatedly stressed that the ECB would review its measures to date at its next meeting, and noted that there was consensus on this issue among the other central bankers that sit on the decision-making governing council.

The credibility of the ECB would be harmed if the central bank was not prepared to revise its stance on monetary policy stance, Mr. Draghi warned.

In March, the ECB will also present a series of revised inflation forecasts, including a prediction for 2018 for the first time. In light of the drastic decline in the price of oil, inflation is likely to be significantly lower than estimated in December. The ECB chief also warned against the potential for feared second-round effects: A drop in oil could feed through to other consumer prices.

Most investors viewed Mr. Draghi’s comments as a clear sign that he is mulling more aggressive action.

“The ECB has opened the door for additional monetary policy measures,” said Ulrike Kastens, an analyst with Sal. Oppenheim. “A further lowering of the deposit rate at the coming meeting in March seems highly likely.”

Commerzbank chief economist Jörg Krämer agrees, saying that Mr. Draghi was surprisingly clear in signaling a further relaxation of monetary policy. Mr. Krämer also expects another deposit rate cut instead of an increase in the monthly bond purchases. In contrast, Holger Sandte, chief economist for Europe at Nordea, expects both a lower deposit rate and an expansion of the ECB’s bond-buying program.


078 ECB-01 Mario Draghi WTB 2014 resume


Speaking to reporters on Thursday, Mr. Draghi indulged in the core virtue of central bankers. He said he was keeping all options open, and that all possible instruments were still on the table.

Mr. Draghi’s words triggered a bounce in stock markets. Germany’s benchmark DAX index gained more than 2 percent Thursday afternoon. The price of the euro declined by about 1 percent before Mr. Draghi had even finished reading his statement. Investors are speculating that the ECB will indeed relax its monetary policy, and that the price of the common currency will decline.

But Mr. Draghi has disappointed market players before. In December, many investors expected stronger intervention by the ECB, and when that failed to occur, prices tanked. The markets could suffer a similar fate in March if the ECB leaves its monetary policy measures unchanged, fears Jan Holthusen of DZ Bank.

“In the coming weeks, speculation will continue over additional expansive measures on the part of the ECB,” said Mr. Holthusen. “But the ECB will probably have trouble satisfying these expectations.”

Mr. Draghi is aware of the dilemma. When a journalist asked him about disappointment in the markets, the central bank president replied like a couples therapist – and hinted that he may have awakened false hopes. “Communication is a two-way affair,” Mr. Draghi said. “It’s very hard to put the blame of some disappointment on one side only.”


Jan Mallien covers monetary policy for Handelsblatt out of Frankfurt. Michael Brächer is a financial editor in the investment team in Frankfurt. To contact the authors: and

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