MILAN — European Central Bank president Mario Draghi’s efforts to fight the continent’s crisis have for the first time been foiled by that most formidable of adversaries: European politics.
Draghi came onto the job in November with a bang — making interest-rate cuts that his predecessor had delayed and taking emergency measures, such as cheap loans to banks, that eased the debt crisis temporarily.
So when he declared last week that the ECB would do “whatever it takes” to save the euro, markets believed him and rallied hard. But Draghi disappointed those investors at a news conference Thursday: Instead of announcing new, concrete measures, he said the ECB was working on a plan.
The reason is there was one holdout, Germany. The country’s central bank, which is traditionally cautious about stimulating the economy for fear of creating inflation, refused to back his latest plan for new bond purchases that would drive down countries’ borrowing rates. Instead, the plan will go through committees for approval. Global markets tanked on the news.
It seems Draghi, the fleet-footed pragmatist, has been caught up in Europe’s web of politics.
“Today’s conference really has shown who is king,” said Craig Erlam, a market analyst at Alpari UK.
The German central bank, or Bundesbank, is highly influential within the ECB and has been uncomfortable with the ECB’s emergency measures, both the cheap loans to banks and the purchases of government bonds.
