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ECB: Draghi's dilemma, inflation fighting vs stimulus


ECB: Draghi's dilemma, inflation fighting vs stimulus


As Mario Draghi takes over as the head of the European Central Bank he faces a massive task. The ECB is central to tackling the euro zone debt crisis.

The financial markets will be closely scrutinising his every utterance and are keen to see how much his approach differs from Jean-Claude Trichet.

The outgoing ECB chief was keen to stress that his replacement is will continue to defend the Bank’s independence. Trichet said: “On the one hand, we have to continue to be credible and that is the reason why we embark in our standard measures, interest rates, and our non-standard measures. We cannot substitute to governments, we will not substitute to governments.”

Trichet, who was focused on controlling inflation, raised interest rates and some say that has hobbled the euro zone’s economic recovery.

So what of the new man? We asked trader Oliver Roth in Frankfurt: “We are expecting more or less the same policy coming up. We are looking forward to the next ECB meeting where we are expecting also a lowering of the interest rates from actually 1.5 percent to 1.25 percent.”

Draghi’s challenge is to balance inflation fighting — which would please Germany — with cutting interest rates to help support the region’s economic growth, which is what the heavily indebted weaker euro zone economies want.

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