Europe News

Draghi defends ECB in Germany from ‘very vocal’ critics

European Central Bank (ECB) President Mario Draghi appeared in Berlin on Wednesday to defend the institution from some of its sternest critics — German lawmakers.

The head of the central bank detailed how its ultra-easy monetary policies had helped — rather than hindered — the German economy in an address at the Bundestag, Germany's lower house of parliament. He said these policies had "countered the threat of a new 'Great Depression.'"

Mario Draghi
Kai Pfaffenbach | Reuters

Draghi described the benefits he believed ECB stimulative polices like very low interest rates and a trillion-euro ($1.1 trillion) bond-buying program had brought Germany.

"Through our efforts to bring inflation back towards 2 percent, we have contributed to higher growth and the creation of more jobs. In Germany, exports are benefiting from the recovery in the euro area, unemployment is at its lowest level since reunification, people's take-home pay is increasing noticeably, and venture capital is pouring into Berlin's silicon alley," he told lawmakers, according to a statement on the ECB's website.

Germany is the biggest economy in the 19-country euro zone, where monetary policy is set by the ECB. Its economy grew by 0.4 percent in the second quarter, quarter-on-quarter, marginally above the euro zone average of 0.3 percent. German unemployment stood at 4.2 percent in July, among the lowest of any euro zone country.

The ECB's policies to bolster euro zone inflation and growth have come under fire in Germany, culminating in a legal challenge to the central bank's emergency bond-buying program. However, in June, Germany's own constitutional court struck down the charge that the program violated European law.

Germany's Federal Constitutional Court.
ULI DECK/AFP/Getty Images

With the ECB refinancing rate at 0.00 percent, Germany has also complained of the hit from low interest rates to savers. However, Draghi said on Wednesday that households could still earn "satisfactory" returns, and referenced reports from Germany's own central bank to support his points.

"Savers can on average still earn satisfactory rates of return from diversifying their assets, even when interest rates on deposit and savings accounts are very low. This has also been the case in Germany according to another recent Bundesbank study," Draghi said.

"Moreover, there have been many episodes of low, or even negative, real interest rates in Germany — well before the introduction of the euro, as a recent Bundesbank study has shown," he added.

In addition, Draghi denied that his policies were responsible for the difficulties faced by "certain German financial firms." His comments came as the CEO of Deutsche Bank, John Cryan, attempted to reassure investors about the capital strength of Germany's biggest bank by assets.

"Those who blame ECB policy for the mixed performance of certain German financial firms have been very vocal. But … the ECB's monetary policy is not the main factor for the low profitability of banks," Draghi said on Wednesday.

"While some banks' business models may indeed need to adapt to the current low interest rate environment, they also need to address their own structural issues, such as overcapacity, the stock of non-performing loans and the potential impact of technological innovation. Low profitability is closely linked to low operational efficiency," he added.

Germany has fiscal space

Draghi spoke to reporters in Berlin on Wednesday after his Bundestag session.

The central banker has previously said that countries should compliment the ECB's expansionary monetary policies with fiscal ones where possible. He confirmed that he had discussed this with the German lawmakers on Wednesday.

"We briefly discussed the fact that I did say in the last (ECB) press conference that countries that have fiscal space should use it — and Germany does have fiscal space," he said in answer to a question from CNBC's Annette Weisbach.

"Now, however, we have to be nuanced about this, because Germany is also close to full employment. So if there is space for some fiscal expansion, it should be carefully targeted. I have never argued for irresponsible fiscal expansion."

Draghi said he was comfortable discussing his views with those who disagreed — but that did not mean his opinions would change.

"I cherish occasions for debate, to listen to people who have different views. It is very important for us (the ECB), because it forces us to think more about our views — though not changing them, of course," Draghi said.

"It also highlights ... some concerns that are founded and risks that are there," he added later.