Dutch parliament grills ECB chief Draghi; Demands shutting Europe's money faucet
On Wednesday afternoon European Central Bank president Mario Draghi is visiting the Tweede Kamer, the lower house of Dutch parliament. He can expect to be met with hostility and demands for the ECB to stop pushing billions of euros into the European economy in an effort to boost growth, NU.nl reports after speaking with numerous parliamentarians.
The Dutch parliamentarians want the ECB to reduce its large debt buying program to a gradual stop. "Sooner rather than later", CDA MP Pieter Omtzigt said. PVV MP Tony van Dijck agrees. "He has to stop it as soon as possible. It's bad policy for the Netherlands."
The parliamentarians also wonder whether the ECB is not exceeding the boundaries of its powers by indirectly purchasing government securities. Direct government funding is against European rules. "Where is the boundary of the ECB mandate?" VVD parliamentarian Mark Harbers asked NU.nl.
Whether or not the Dutch parliamentarians' critique will have any effect on ECB policy, remains to be seen. The European Central Bank operates strictly independent of politics.
There is a great deal of criticism on the ECB's debt buying program. Since March 2015 the program allowed the central bank to buy 60 million euros worth of government bonds and corporate loans per month from banks in the eurozone. The measure is intended to boost economic growth in the eurozone and to keep inflation just below 2 percent - the ideal percentage for healthy economic growth, according to the ECB.
And economic growth in the eurozone is indeed improving. But this can also be attributed to rising oil prices. So whether the ECB policy is having the desired effect remains a question, according to NU.nl.
The downsides of this policy include that the interest rate on government loans decrease, because there is a large buyer in the market. This is bad for pension funds that invest in government securities and resulted in some pension payouts not being increased, or even being lowered.
It also causes a bubble on the housing market - low interest rates puts pressure on mortgage rates, which in turn increases house prices. The housing markets in Amsterdam and Utrecht are already overheating.
Finally the ECB policy dropped savings interest rates to historically low levels. Triodos Bank already dropped its savings interest rate to 0. And many banks are concerned about a looming negative interest rate - which will mean that savers have to pay the bank to hold their money.
The Dutch parliamentarians understand that suddenly stopping the purchasing program will also have consequences. Which is why they suggest lowering it to a gradual stop. Nevertheless, Draghi will face a critical Tweede Kamer on Wednesday. "Let Draghi note that the Member States feel differently about his policies", VVD MP Harbers said. PVV parliamentarian Van Dijck: "We have to show our teeth. We will make it difficult for Draghi."
