THE head of the European Central Bank (ECB) has expressed concern about the Trump administration’s moves to relax financial oversight, saying such deregulation helped pave the way for the global financial crisis.
During a hearing in the European Parliament, ECB president Mario Draghi was asked about Donald Trump’s efforts to revisit parts of the Dodd-Frank regulations aimed at keeping risk-taking banks from sparking a repeat of the 2007-9 financial turbulence.
He said: “Frankly, I don’t see any reason to relax the current regulatory stance which has produced a much, much stronger banking – and, generally, financial services – industry than we had before the crisis.”
Mr Draghi said that financial deregulation and expansive monetary policy were “exactly the ground on which the financial crisis developed”.
He added that more clarity was needed on what exactly Mr Trump’s government plans to do. Mr Trump on Friday directed the US Treasury to look for potential changes in the law’s provisions.
Responding to questions from members of the parliament’s economic and monetary affairs committee, Mr Draghi also rejected claims by the Trump administration that Germany gets unfair trade advantage from a weak euro.
Peter Navarro, head of the US National Trade Council, has claimed that Germany is exploiting what he called a “grossly undervalued” currency. Lower currencies help exports; the euro has fallen from around 1.40 US dollars in 2014 to around 1.07 dollars now.
Mr Draghi said euro member Germany “has not engaged in persistent, one-sided intervention in foreign exchange markets”, adding: “We are not currency manipulators.”
Mr Draghi said Germany’s large trade surplus was based on economic competitiveness, not currency advantage.
As a euro member, Germany by itself no longer controls the interest rate and monetary policies that could force down the euro. Those powers now reside at the ECB, created to manage the shared currency.
In fact, German politicians and German members of the ECB’s board have campaigned in vain for higher interest rate policy that is likely to have strengthened the euro. ECB stimulus has helped lower the euro.
Mr Draghi said those policies were carried out to boost the lagging recovery in Europe, not for currency advantage, adding: “The monetary policies that we have conducted reflect the different stage of the cycle in the eurozone and the United States.”
German finance minister Wolfgang Schaeuble deflected the criticism of Germany by saying in an interview published over the weekend that ECB policies that were right for the eurozone as a whole were too loose for Germany.
When Mr Draghi launched the stimulus, “I told him that he would drive up Germany’s export surplus,” Mr Schaeuble was quoted as saying in the Tagesspiegel newspaper.
“I promised then not to criticise this course but I also don’t want to be criticised for its consequences.”