As Mario Draghi Departs, the E.C.B. Is Divided Over His Policies

on Oct24
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FRANKFURT — Mario Draghi led his last monetary policy meeting as president of the European Central Bank on Thursday, his legacy as savior of the eurozone clouded by divisions among the bank’s policymakers that have burst into the open in the final months of his tenure.

Christine Lagarde will be sworn in as Mr. Draghi’s successor on Tuesday, and will immediately confront a revolt by members of the bank’s Governing Council who believe the bank’s easy money policies have created asset bubbles and set the stage for a financial crisis.

Mr. Draghi insisted on Thursday that those concerns were overblown and stimulus was still needed. The eurozone economy is suffering “protracted weakness,” Mr. Draghi said.

“Geopolitical uncertainty has continued to affect markets,” he said during a news conference in Frankfurt. “The main risk from all viewpoints is a downturn in the economy, whether it’s global or it’s eurozone.”

The Governing Council did not make any changes to monetary policy at the meeting on Thursday, six weeks after it took action to head off recession in the 19 countries in the eurozone.

But a vocal faction on the council has contended that measures intended to push down market interest rates went too far. They say low interest rates, which have fallen below zero for many government bonds, have encouraged irresponsible borrowing.

Mr. Draghi, looking relaxed and perhaps relieved to soon be shedding the burdens of a job he’s held since 2011, shrugged off questions about the split within the Governing Council. The mood during his final meeting, he said, was conciliatory.

“Today, the discussion was basically supportive,” he said. “One of the dissenters called for unity. Another dissenter said bygones are bygones.”

Whether the same generosity will be extended to Ms. Lagarde, who attended the monetary policy meeting in Frankfurt but did not appear at the news conference, remains to be seen.

In September, the council cut the rate banks pay to park money at the central bank to minus 0.5 percent from minus 0.4 percent. The negative interest rate is essentially a penalty on lenders that hoard cash. The council also decided to resume purchases of government and corporate bonds, a way of pushing down market interest rates and making credit cheaper.

These decisions inspired an unusually open backlash from some members of the Governing Council, from countries including Germany and the Netherlands, who believe they were unnecessary and reckless.

Klaas Knot, the president of the Dutch central bank, said the measures were “disproportionate to the present economic conditions.”

“There are increasing signs of scarcity of low-risk assets, distorted pricing in financial markets and excessive risk-seeking behavior in the housing markets,” Mr. Knot said in a statement in September.

Until recently, the dissenters expressed their feelings discreetly, while Mr. Draghi insisted that key decisions by the central bank were backed by consensus. Unity is important to a central bank’s credibility and its ability to influence financial markets. That consensus was essential during the novel and extraordinary measures introduced on Mr. Draghi’s watch that were seen as having prevented the eurozone from collapse during a severe debt crisis that began in 2010.

Mr. Draghi argued Thursday that the crisis measures worked, and he offered assurances that the central bank would keep a close eye on the potential risks. “The improvements in the economy have more than offset the negative side effect from low rates,” he said.

The dissenters appear to be taking advantage of the leadership transition to stake out their views while Ms. Lagarde is new in the job and has not had a chance to establish her authority.

Ms. Lagarde, the former managing director of the International Monetary Fund, can handle the pressure, Mr. Draghi said.

“I have no advice for Christine. She knows better than anyone else what to do and what to say,” he said.

Ms. Lagarde will soon acquire a potential ally in this debate. The German government on Tuesday nominated Isabel Schnabel, a member of the German Council of Economic Experts, to a vacancy on the central bank’s Executive Board. If confirmed, Ms. Schnabel will replace Sabine Lautenschläger on the six-person board, which is part of the Governing Council and manages the operations of the central bank.

Ms. Lautenschläger resigned last month. She did not give a reason, but is widely assumed to have been unhappy with the central bank’s course. She was also the only woman on the 25-person Governing Council, a gender imbalance that was a focus of a conference at the bank’s headquarters on Tuesday. Ms. Schnabel’s appointment, and the arrival of Ms. Lagarde, brings that number to two.

In contrast to much of the German economics establishment, Ms. Schnabel, a professor of economics at the University of Bonn, is regarded as a supporter of the policies pursued under Mr. Draghi.

The decision last month to increase stimulus was a response to signs of an economic slowdown caused by trade war between the United States and China, anxiety over Brexit and conflict in the Middle East.

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