Meloni slams ECB rate hiking in widening political backlash

By Alessandra Migliaccio and Craig Stirling

25 Oct 2022 · 2 min read

Editor's Note

Italy's newly-installed prime minister has waste no time in criticising the European Central Bank's monetary policy. And she's not alone, Bloomberg reports.

Italian Prime Minister Giorgia Meloni used her first speech to lawmakers to criticize the European Central Bank's interest-rate hikes, adding a sharper tone to recent political carping in the euro zone about tighter monetary policy. The decision to raise borrowing costs "is considered by many to be a rash choice, which runs the risk of impacting banking credit to families and businesses," the new premier said on Tuesday in Rome. "That is compounded by the decision already made by the central bank to end, beginning on July 1 2022, the program to buy back bonds on the open market, which creates further difficulties for member states that have elevated public debt," she said. The attack may be the most direct yet by a euro-zone politician at ECB rate hikes at a time when Frankfurt officials are poised to raise again on Thursday, probably by 75 basis points. They have already increased borrowing costs by 1.25 percentage point since July. With a recession likely to be already gripping the euro area, the ECB's move this week to tame rampant inflation will probably stray into territory unseen since 2008, when policy makers also raised rates as a slump took hold. That subsequently was quickly reversed as the Global Financial Crisis intensified. Meloni's reference to difficulties faced by highly indebted countries applies particularly to Italy. With public borrowings currently at about 150% of output, questions over the sustainability of such a load have kept the country firmly in the focus of investors. Italy's corresponding vulnerability to rising rates was laid bare in June, when a blowout in bond yields forced the ECB to convene an emergency meeting and start creating a new crisis tool to stem such speculation in future. That measure was unveiled by officials in July, concurrently with an initial 50 basis-point hike in borrowing costs. Other leaders have been less pointed on than Meloni. Last week, French President Emmanuel Macron warned European monetary policymakers over attacking demand as a way to rein in inflation given the economy isn't overheating in contrast to the US. "I'm concerned to see lots of experts and certain European monetary policymakers explaining to us that we need to break demand in Europe to better contain inflation," he told newspaper Les Echos. "One must be very careful." His Finnish colleague, Prime Minister Sanna Marin also attacked central banks in early October, posting a quote on Twitter saying that something was "seriously wrong with the prevailing ideas of monetary policy, when central banks protect their credibility by driving economies into recession." ECB officials themselves have been leveled criticism at government policies recently, arguing that they're not targeted enough and risk stoking consumer prices. The International Monetary Fund added its own voice to that on Sunday, saying European countries shouldn't make central banks' job of fighting inflation even harder by using broad support measures.

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