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ECB head Mario Draghi's time is running out

Illustration: Lazaro Gamio/Axios

Mario Draghi's penultimate policy meeting as European Central Bank president was a bit like watching a past-his-prime boxer struggling through the late rounds of a fight. "Dovish" Draghi still has the moves, but it's obvious the game has passed him by and a new era has begun.

Driving the news: Draghi, whose term is set to expire at the end of October, not only cut the ECB's already negative deposit rate to -0.5%, he also announced additional stimulus of 20 billion euros a month to continue indefinitely and lowered the central bank's inflation and growth forecasts.

What they're saying: "Lower rates and QE are unlikely to have much effect on the eurozone economy. Draghi knows that," Joseph Trevisani, senior analyst at FXStreet, tells Axios in an email. "By placing the onus for inaction on governments he distracts (as much as possible) from the probable failure of the ECB stimulus."

The big picture: Draghi's "whatever it takes" mantra has been credited with saving the eurozone, Europe and the euro currency, as the central bank has taken unprecedented steps to bring the economy back to life during his 8 years as its head.

  • However, it has been largely unsuccessful in generating inflation and allowing eurozone economies to stand on their own.
  • Draghi effectively admitted as much on Thursday, calling for politicians to take the reins and administer fiscal stimulus to help prop up their respective economies.
  • But he still pushed forward with exceptional measures, reportedly in the face of unprecedented dissent from the influential central bank governors of Germany, France, the Netherlands, Austria and Estonia, among others.

Be smart: "Central banks are loath to ever admit to reaching the limits of monetary policy, but that is more or less where we think the ECB is," Deutsche Bank chief U.K. economist Mark Wall and senior U.K. economist Peter Sidorov said in a note to clients.

Where it stands: Draghi also tried to placate the heads of Europe's consumer banks by instituting a tiered deposit system that would spare some banks from having to pay the central bank to park their reserves.

The bottom line: The measures will provide some relief for the banking system, Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research, tells Axios.

The big question: Will it actually be a sustainable solution for the underlying problems?

  • "Oh, no," Jones says, with a hearty laugh. "The problem is demand and how to stimulate demand in a world of aging populations, demographic challenges, a China slowdown, trade wars, all those things that really monetary policy can’t solve. They can only address what they can address."

Go deeper: The ECB likes inflation now