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Draghi just fueled speculation the ECB is pressuring governments to splash the cash

A rather muted and lackluster media conference by Mario Draghi, the president of the European Central Bank (ECB), prompted speculation the central bank is pressuring governments to take up the baton to simulate growth.

The ECB held interest rates on Thursday and Draghi disappointed investors by giving very few hints on the possibility of extending the central bank's current quantitative-easing program. He hinted, though, that he hoped euro zone governments might finally step up and unleash some fiscal stimulus, referring to a recent announcement made by policymakers at the G-20 summit in China. The G-20 features the 20 biggest economies in the world, including euro zone members France, Germany and Italy and the European Union as a whole.


Mario Draghi
Emmanuel Dunand | AFP | Getty Images
Mario Draghi

"The ECB can basically flag what is needed for monetary policy to be even more effective that it is a this present time," Draghi said at his regular media conference following the ECB's rate decision.

"And I think what I just read on the G-20 is a quite powerful statement of commitment. The G-20 … It's not central bankers, it's governments; it's finance ministers. So they committed in their statement to use all policies, structural policies, fiscal policies, tax policy and to make government expenditure more friendly, which is something that all of you have heard me saying several times."

Draghi has been urging governments to fulfill their side of the bargain on growth for several years and it looks like he might be about to receive his wish. Japan has already announced a major spending plan and the U.K. is set to unveil a new fiscal plan this fall to combat the effects that the vote to leave the European Union might have on the economy.

This comes at a time of increasing skepticism towards monetary policy and acceptance that central bankers have done all they can since the global financial crash of 2008. Draghi explained to his audience on Thursday that the composition of any spending program by government was "as important, if not more important" that it's size.

"Draghi indicated that countries with fiscal space should use it - and notably, observed that Germany has fiscal space. Given that a number of German politicians have criticized the ECB's monetary policy, that seems a fair riposte," Howard Archer, an economist at IHS Markit, said in a research note following Draghi's conference.

Marc Ostwald, a strategist at ADM Investor Services, believes there is a clear desire by Draghi to put some indirect pressure on governments to act on fiscal measures and structural reforms, by not signaling further easing.

"The ostensible shift towards 'fiscalism' remains the overarching theme, with monetary policy options in principle exhausted, even if central banks will be loath to admit that," he said in a note.

Neil Williams, group chief economist at Hermes Investment Management, had similar feelings, and suggested the euro zone looks "halfway down the Japan route."

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