The ECB rejected US accusations of currency manipulation yesterday and warned that deregulating the banking industry, now being discussed in Washington, could sow the seeds of the next financial crisis.
Arguing that lax regulation had been a key cause of the global financial crisis a decade ago, ECB president Mario Draghi said the idea of easing bank rules was not just worrying but potentially dangerous, threatening the relative stability that has supported the slow but steady recovery.
Mr Draghi’s words are among the strongest reactions yet from Europe since US president Donald Trump ordered a review of banking rules with the implicit aim of loosening them. That raises the spectre of the US pulling out of some international co-operation efforts.
“The last thing we need at this point in time is the relaxation of regulation,” Mr Draghi told the European Parliament’s committee on economic affairs in Brussels. “The idea of repeating the conditions that were in place before the crisis is something that is very worrisome.”
Andreas Dombret, a member of the board of Germany’s powerful central bank, the Bundesbank, said that reversing or weakening regulations all at once would be a “big mistake”, because it would increase the chance of another financial crisis.
“That is why I see a possible lowering of regulatory requirements in the US, which is under discussion, critically,” said Mr Dombret, who is also a member of the Basel committee drafting new global banking rules.
Roberto Gualtieri, chairman of the European Parliament’s economic and monetary affairs committee, also criticised Mr Trump.
“Some first concrete confirmations of a new more unilateral policy stance by the new US administration, including on sensitive financial markets regulatory issues, raise concerns and require both thorough reflection and action from the EU side,” he said.
Mr Draghi’s US counterpart, Federal Reserve chair Janet Yellen, has faced pressure to step back from international regulatory co-operation. Indeed, an influential member of the Senate recently called on Ms Yellen to end talks in forums like the Basel Committee on Banking and Supervision, some of whose proposed rules he said would disadvantage the US.
“It is incumbent upon all regulators to support the US economy, and scrutinise international agreements that are killing American jobs,” Patrick McHenry, vice-cChairman of the Senate’s Financial Services Committee, told Ms Yellen.
Ms Draghi also rebuffed accusations by Mr Trump’s top trade adviser that Germany, the eurozone’s biggest economy, is using a grossly undervalued currency to take advantage of the US. He argued instead that economic weakness is the main reason for the weak euro.
Germany runs a massive trade surplus with the US. US trade adviser Peter Navarro said it was exploiting this to America’s detriment, de facto accusing Berlin of currency manipulation.
However, Germany does not set monetary policy and has repeatedly complained that ECB policy is too easy, calling on Mr Draghi to end its massive stimulus programme.
“First and foremost: We are not currency manipulators.” Mr Draghi said. “Second, our monetary policies reflect the diverse state of the [economic] cycle of the euro one and the US.”
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