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Spend more if you want ECB to raise rates, Draghi tells governments

MILAN (Reuters) - Euro zone governments can help the European Central Bank raise interest rates sooner if they loosen their own purse strings to support the economy, ECB President Mario Draghi said on Friday.

FILE PHOTO: European Central Bank (ECB) President Mario Draghi testifies before the European Parliament's Economic and Monetary Affairs Committee in Brussels, Belgium September 23, 2019. REUTERS/Francois Lenoir

Draghi, who will step down at the end of the month, was likely taking aim at critics of the ECB’s easy policy in cash-rich countries such as Germany, where the government is still running a budget surplus despite a stagnating economy.

The ECB has become engulfed in its biggest public spat in years after Draghi forced through a resumption of the bank’s 2.6 trillion euro bond-buying program last month despite opposition from more than a third of its Governing Council.

“A more active fiscal policy in the euro area would thus make it possible to adjust our policies more quickly, which we are well aware are having adverse effects on certain sectors of society and certain intermediaries,” Draghi told an event in Milan.

Euro zone governments also called this week on Germany and the Netherlands to invest more but were rebuffed by the German and Dutch finance ministers.

Draghi also took a swing at eurosceptics, who fell way short of a majority at the last European elections and have also lost some support in Draghi’s native Italy since the right-wing League party left government in the summer.

“It is now the ‘doubters’ that are being doubted,” Draghi said.

He defended the ECB’s role in the Greek debt crisis of 2015, when it froze a cash lifeline for the country’s banks - forcing the government to introduce capital controls and weakening its negotiating positions with creditors.

The actions of European authorities in Greece have been criticized by the then finance minister Yanis Varoufakis in a book that was recently turned into a movie and screened at the ECB this week.

“The ECB stayed within the confines of its mandate,” Draghi said. “Ultimately, it was an approach that worked for both Greece and Europe, although the price paid by the Greek people was high.”

Writing by Francesco Canepa in Frankfurt; Editing by Hugh Lawson