Draghi’s patience snaps on euro as ECB threatens response

Stefan Riecher & Rainer Buergin

Mario Draghi’s patience with the euro has snapped.

“The strengthening of the exchange rate requires further monetary stimulus,” European Central Bank President Draghi told reporters in Washington on April 12. “That’s an important dimension for our price stability.”

The warning, which prompted the biggest drop in the single currency in three weeks, marked the strongest stance yet taken by Draghi since he and fellow policy makers began complaining in early March about the euro’s rise. With inflation at about a quarter of the ECB’s goal, the currency’s almost 6 percent gain against the dollar in the past year is further jeopardizing price stability by cheapening imports and hurting exporters.

The elevated rhetoric, echoed by other ECB officials, was a theme of weekend meetings of the International Monetary Fund and World Bank that global policy makers used to urge European officials to address lackluster inflation before it turns into Japanese-style deflation.

The euro slid against all except two of its 16 major counterparts and was down 0.4 percent at $1.3827 at 1:30 p.m. Frankfurt time. The currency climbed 1.3 percent against the dollar last week.

“More needs to be done to support growth and guard against further disinflation in the euro area,” U.S. Treasury Secretary Jacob J. Lew said on April 11, adding he was “concerned by inflation rates consistently below target and weak demand.”

The strong euro is “a serious preoccupation,” Bank of France Governor Christian Noyer said, adding that the “overshooting of the exchange rate should correct itself.”

Inflation would be about 1 percent without the exchange rate’s advance, twice the 0.5 percent of March...