“There cannot be any limit to how far we are willing to deploy our instruments, within our mandate,” Mario Draghi, president of the European Central Bank, has said repeatedly in the last few months. The message is clear: The European Central Bank is determined to take its policy even more deeply into unknown territory.
The limits of monetary policy were exceeded long ago, and it seems everything is now possible and permitted. The statement underpins the theory that there has been a paradigm shift in ECB monetary policy since 2011/2012. The current leadership of the ECB follows the neo-Keynesian paradigm.
The statement that the ECB is acting “within our mandate” has been mentioned in connection with every decision reached by the ECB’s governing council since 2010. But since 2011, it has proved to be implausible and is completely misleading. It is an advance justification for the ECB’s actions and it conceals true intentions and goals.
The ECB is ignoring the lack of effectiveness and increasingly discernible negative side effects of its policy. It is also negligently accepting as a necessary evil the public’s dwindling trust in the central bank and the euro.
This could still be corrected, even though that would lead to substantial market distortions. Instead, the ECB seems willing to continue the risky experiment with its policy of negative interest rates and to expand quantitative easing, or QE.
The ECB has long been operating beyond the mandate it was given by policymakers. Since 2010, partly of its own volition and partly yielding to external pressure, it has become a political player. It is practicing fiscal and economic policy with the instruments of its “unconventional monetary policy,” its Outright Monetary Transactions and the quantitative easing of monetary policy since 2015, including the massive purchases of government bonds and other securities.