Draghi signals unwinding of fiscal stimulus but warns Trump of a confidence crisis

STEPHANIE LECOCQ

- President of the European Central Bank (ECB) and chairman of the European systemic risk Board, Mario Draghi, attends a hearing of the European Parliament Committee on Economic and Monetary Affairs at the European Parliament in Brussels, Belgium, 06 February 2017.

Draghi signals unwinding of fiscal stimulus but warns Trump of a confidence crisis


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The European Central Bank took a step back from its fiscal stimulus policy, expressing confidence on the robustness of the euro zone’s economic recovery; at the same time, Mario Draghi warned US President Donald Trump that his trade war policies could trigger a crisis of confidence in the US.

On Thursday, the ECB dropped a pledge to increase its bond buying if needed. Frankfurt will continue buying bonds at a rate of €30bn a month, completing its €2.55 trillion bond-buying programme. The programme is expected to continue until September 2018 and, if needed, it will be extended. However, the ECB dropped a reference to extending the sum, as noted both by Reuters and the German public broadcaster DW.

Mario Draghi said on Thursday that it is possible that the euro zone will grow faster than currently projected. The ECB has already raised its 2018 growth projections for the euro zone to 2,4%, but inflation is not expected to reach the 2% target. Inflation will remain subdued to 1,5% in 2018, according to ECB projections.

However, Mario Draghi did warn of the dangers of “protectionism,” that is, hours before US President Trump was expected to make specific statements regarding his steel and aluminum tariffs. “If you put tariffs against (those) who are your allies, one wonders who the enemies are,” Draghi said.

The President of the ECB warned that such “unilateral decision” could have a negative effect on US inflation and output.

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