181124 Mario Draghi 2
Mario Draghi Image Credit: Reuters

Frankfurt: European Central Bank President Mario Draghi’s latest monetary-stimulus initiative was lambasted by a group of former policymakers criticising the institution’s stance and its approach to its inflation goal.

“As former central bankers and as European citizens, we are witnessing the ECB’s ongoing crisis mode with growing concern,” officials including prior chief economists Otmar Issing and Juergen Stark wrote in a memorandum published Friday. “Interest rates have lost their steering function and financial stability risks have increased. The longer the ultra-low or negative interest rate policy and liquidity flooding of markets continue, the greater the potential for a setback.”

Signatories of the document also include former policymakers from France, Austria and the Netherlands, who held predominantly hawkish views during their time in office.

They raised a range of concerns including a mistaken diagnosis and approach to complying with their price-stability mandate, the adverse effect of negative interest rates on the entire financial sector and the financing of governments through asset purchases.

“The suspicion that behind this measure lies an intent to protect heavily indebted governments from a rise in interest rates is becoming increasingly well founded,” the officials wrote. “From an economic point of view, the ECB has already entered the territory of monetary financing of government spending, which is strictly prohibited.”

They also blasted a new round of long-term loans that started last month, saying together with low rates it keeps weak banks and companies afloat, encouraging a “zombification” of the economy.

The memorandum was signed by the following people. Their judgement was shared by Jacques de Larosiere, a former governor of the Bank of France.