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Italian prime minister Giorgia Meloni has lashed out at the European Central Bank for its repeated interest rate rises, saying its “simplistic” approach to combating inflation was likely to hurt European economies more than help them.
Speaking to parliament on Wednesday, Meloni argued the eurozone’s persistently high inflation — which hit 6.1 per cent in May but is projected to fall to 5.6 per cent this month — was not a result of economic overheating, but a consequence of the energy price shock stemming from the war in Ukraine.
Although she described the price rises as “a hateful hidden tax that hits the poorest and those on fixed income”, Meloni warned that the ECB’s strategy for trying to cool inflation was misguided.
“It’s right to fight [inflation] hard but the ECB’s simplistic recipe of raising interest rates does not appear to many as the correct path to pursue,” she said. “We cannot overlook the risk that the constant rise in rates will end up affecting our economies more than inflation. The cure will prove more harmful than the disease.”
Meloni’s criticism came a day after Christine Lagarde, the ECB president, told the bank’s annual conference in Portugal that interest rates — already at their highest level in 22 years — needed to be further raised to counter the risk that soaring wages would keep inflation above the bank’s 2 per cent target for too long.
The ECB’s aggressive and rapid monetary tightening — which has seen rates rise from minus 0.5 per cent a year ago to 3.5 per cent this month — is already taking a toll on the eurozone economy, which shrank 0.1 per cent in each of the past two quarters, and still shows signs of weakness in industrial production and business activity data.
High rates are a particular worry for Italy, given its crushing public debt burden of nearly 144 per cent.
But Lagarde said “barring a material change to the outlook” the ECB would raise rates again next month and that uncertainty was so high it was unable to say when rates will peak.
“Our job is not done,” she said. “We have made significant progress but — faced with a more persistent inflation process — we cannot waver, and we cannot declare victory yet.”
Her words sparked anger in Rome on Tuesday, where Antonio Tajani, the foreign minister, and Matteo Salvini, the deputy prime minister, both slammed Lagarde’s approach, with Salvini calling further rises “senseless and harmful”.
Italy’s inflation rate dropped to a 14-month low in June, with consumer prices up 6.7 per cent year on year, compared with 8 per cent in May.
Meloni told the Italian parliament that instead of raising rates ever higher, Europe should fight inflation by focusing on measures to control the price of energy and raw materials. “It’s probably more useful to focus on the specific causes that trigger this inflation,” she said.
The Meloni government’s criticism of the ECB comes at a sensitive moment as Rome has just announced the appointment of Fabio Panetta, a member of the ECB’s executive board, as the new governor of Banca d’Italia, Italy’s central bank.
The appointment of Panetta — one of the board’s most dovish voices who has warned of the risks of excessive tightening — will create a vacancy at the central bank that will test Italy’s ability to choose his successor on the board, as other countries clamour for representation.
Additional reporting by Giuliana Ricozzi in Rome
