Donald Trump and Brexit mean turbulent year ahead for Europe, says ECB chief Mario Draghi

‘Just look at the election calendar for the year to come and that is by itself a source of uncertainty’

Mario Draghi sa (AFP)

If you thought this year had already exceeded the limit for political upheavals, Mario Draghi is warning there may not be much respite in 2017.

Asked about the election of Donald Trump as US president, the head of the European Central Bank offered his perspective not just on what he called the “radically new US administration,” but also Brexit and the Italian referendum that cost Prime Minister Matteo Renzi his job this month. National votes in the Netherlands, France and Germany could further muddy the outlook, he said.

“Just look at the election calendar for the year to come and that is by itself a source of uncertainty,” Draghi said in Frankfurt after the ECB’s latest policy announcement on Thursday. “So there is a big uncertainty, much of which is political, and whether we can do something about that or not is an open question. I think what the central banks can do is to keep a steady hand.”

Draghi’s comments came after the ECB said it would extend its quantitative-easing program by nine months to the end of 2017, buying at a reduced monthly pace with the caveat that it can step up or prolong purchases if needed.

With upcoming elections in some of the region’s biggest countries potentially putting structural reforms on the back burner and a surge of populism undercutting support for European integration, the central bank may find itself tethered to non-standard measures for some time.

Draghi said it was very difficult to assess what the effects from 2016’s “big changes” will be, but it’s going to come sooner or later.

“All of these events, especially Brexit and the new administration in the US, have effects that are, by their very nature, going to develop their full dimensions in the medium to long term,” he told reporters. “So we’ll certainly see consequences, though they are very, very difficult to assess now.”

For Draghi, the resilience of financial markets was one bright spot amidst all the political changes in the UK, US and Italy, and regulators can take credit for that.

“‘In all three cases, the markets, the financial intermediaries, proved much more resilient than people expected them to be,” he said. “This has probably many reasons, many causes, one of which is certainly the good work that regulators have done in the last seven to eight years.”