Mario Draghi will never raise interest rates

Crisis fighter.
Crisis fighter.
Image: REUTERS/Vincent Kessler
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Mario Draghi is the reluctant face of the euro-zone economy’s perpetual sluggishness.

When the Italian economist became president of European Central Bank in October 2011, the region was in the throes of a sovereign debt crisis. One of his first moves was to cut interest rates. From the start he was in fire-fighting mode, and over the course of his eight-year term he’s never been able to completely shift out of it.

As an economy grows and contracts, central bankers try to maintain a steady level of inflation by raising and lowering interest rates—hikes when there’s a risk of overheating and cuts when growth needs a boost. But the challenges Europe has faced mean Draghi has only ever gotten to cut rates.

Today (March 7), as the central bank slashed its forecasts for the euro zone’s economic growth and inflation, Draghi extended forward guidance on interest rates. He said the bank would keep its record-low rates until at least year’s end. That’s beyond Draghi’s term, which ends in October.

Draghi’s tenure has come to be characterized by the fits and starts of the economy as signs of recovery have been short-lived. In an attempt to revive growth and battle against the threat of deflation, he’s pushed interest rates into negative territory and undertook a massive €2.6 trillion ($2.9 trillion) asset-buying program. In 2017, it seemed like Europe had taken a turn. The region’s growth was surprisingly strong, and Draghi laid the groundwork for the removal of monetary stimulus. But by the time he got around to ending the asset-buying program, at the end of 2018, the economy was already slowing down again.

For this year, the central bank forecasts growth of just 1.1%, compared to the 1.7% it predicted in December. It’s just the latest institution to cut its forecast for the euro zone: The European Commission did so last month and the OECD did the same yesterday, trimming it from from 1.8% to 1%.

The ECB also announced new loans to banks today. The targeted longer-term refinancing operations (TLTROs), cheap loans to banks in return for boosting credit to households and businesses, will begin in September and last until March 2021.

Even with these new measures in place, things aren’t looking up. “The risks surrounding the euro area growth outlook are still tilted to the downside,” Draghi said at a press conference today, “on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism, and vulnerabilities in emerging markets.”