National central bankers in the euro area plan to challenge European Central Bank chief Mario Draghi on Wednesday over what they see as his secretive management style and erratic communication and will urge him to act more collegially, ECB sources said.
The bankers are particularly angered that Draghi effectively set a target for increasing the ECB's balance sheet immediately after the policy-making governing council explicitly agreed not to make any figure public, the sources said.
"This created exactly the expectations we wanted to avoid," an ECB insider said. "Now everything we do is measured against the aim of increasing the balance sheet by a trillion (euros). He created a rod for our own backs."
Irritation among national governors who hold a majority on the 24-member council could limit Draghi's space for bolder policy action in the coming months as the bank faces crucial choices about whether to buy sovereign bonds to combat falling inflation and economic stagnation.
Some members intend to raise their concerns with Draghi at the governors' traditional informal working dinner on Wednesday before their formal monthly rate-setting meeting on Thursday, the sources interviewed by Reuters said.
Many people at the central bank, which manages a single currency for 18 European Union member states, welcomed Draghi's greater informality when he took over from Jean-Claude Trichet of France in 2011. His efforts to keep meetings short, delegate and brainstorm more, were received as a breath of fresh air.
However, as decisions to loosen monetary policy and resort to further unconventional measures have become more contentious, insiders say the Italian ECB chief has acted increasingly on his own or with just a handful of trusted aides, sidelining even key heads of department.
"Mario is more secretive... and less collegial. The national governors sometimes feel kept in the dark, out of the loop," said one veteran ECB insider.
"Jean-Claude used to consult and communicate more," another ECB source said. "He worked a lot to build consensus."
The ECB sources, like other central bankers interviewed for this report, declined to be identified because of the confidentiality of the bank's highly market-sensitive deliberations.
Board in the Dark
Even members of the ECB's executive board, the six-member inner circle that runs the bank, were not informed in advance about two key recent policy announcements, two sources said.
Those were a key passage inserted into Draghi's speech at the U.S. Federal Reserve's Jackson Hole conference in August, in which he highlighted falling euro zone inflation expectations and vowed to act to counter them, and his Sept. 4 comment during a question-and-answer session that the ECB aimed to expand its balance sheet "towards the dimensions it used to have at the beginning of 2012" at the peak of the euro zone crisis.
That particularly rankled with council members since they had just agreed not to put any price tag on the "sizeable" plan decided that day to buy bundled loans known as asset-backed securities (ABS) and covered bonds, the sources said.
"We specifically agreed at the meeting... not to put any numbers on the table," one central banker. "Draghi's reference to the balance sheet of 2012 irritated a lot of colleagues. So he has had to backtrack a bit to compensate."
The ECB declined comment on the matter.
Several ECB sources said Draghi had cut back on circulating policy papers in advance of council meetings, apparently out of concern that opponents, notably in the German Bundesbank, were leaking them to try to block or discredit decisions.
Draghi's relationship with Bundesbank chief Jens Weidmann hit a low point in October after the German publicly criticized ECB policy and each side briefed against each other at the annual IMF session in Washington.
An ECB source said German Chancellor Angela Merkel, who met Draghi at an EU summit on Oct. 24, had privately urged both men to mend their relationship. Merkel went out of her way to praise Draghi publicly that day when asked about a Reuters report on the tensions between the ECB chief, Berlin and the Bundesbank.
After her intervention, Draghi and Weidmann met last week to try to clear the air but they did not resolve all their policy differences, the source said.
Merkel's office declined comment on her reported meeting with Draghi, and neither the ECB nor the Bundesbank would comment on whether Draghi and Weidmann met last week.
"We now know that the further we go, it will be without Jens," said a central banker who has tried to build bridges between them. "He's clearly not going to change his position."
One of the few national chiefs whom Draghi takes into his confidence is Bank of France governor Christian Noyer, an elder statesman who was on the Governing Council when the euro was launched in 1999, one ECB source said. That did not stop Noyer voting against Draghi's plan to buy asset-backed securities and covered bonds, which Noyer thought ill-prepared and technically flawed, another source said.
At times, Draghi has appeared to pay little attention to national governors' comments in the monthly rate-setting meeting after chief economist Peter Praet and board member Benoit Coeure report on the economic situation and financial markets.
"He sits there with these three mobile phones in front of him and sometimes he's sending text messages or going out to make or take phone calls," one source usually in the room said. On at least one occasion, a national governor has skipped his turn to speak because Draghi was not present.
"This has got a bit better. He's paying a bit more attention now," the source said.
The ECB's governing council is currently deeply divided over suggested policies to tackle too-low inflation - though it is difficult to say whether these differences have been a cause of Draghi's more tightly held leadership style or are exacerbated by it.
At least seven and possibly as many as 10 of the 24 council members are against U.S.-style quantitative easing, creating money to buy euro zone government bonds, if inflation falls further below the ECB target of just below 2 percent, the sources said.
Opponents include executive board members Yves Mersch and Sabine Lautenschlaeger as well as governors from Germany, the Netherlands, Luxembourg, Estonia, Latvia and possibly Slovakia, Slovenia and even Austria.
While a unitary state like Japan can make a radical monetary policy change with a slim majority, the ECB sources said it would be politically explosive for Draghi to try to force QE through in the multinational euro zone by such a narrow margin.
He would need to consult national governors more and work harder to build a broader consensus for QE to become feasible in the euro area, they said.
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