As the European Central Bank prepares to usher in a new president, money managers are hoping that fiscal policy developments will take precedence over monetary measures in the eurozone.
During Mario Draghi's eight years at the helm of the ECB, eurozone interest rates were cut and have been languishing in negative territory. The central bank also launched, reduced and then restarted an asset purchase program. More recently, the central bank launched a new effort — interest rate tiering — to partially shield banks from the cost of keeping their overnight liquidity reserves with the ECB.
Even so, money managers agreed that over his time as president, the limitations of monetary policy have been demonstrated.
Mr. Draghi's tenure revealed the limits of a unified monetary policy and a disseminated — or fragmented — fiscal policy, said Tom Clarke, portfolio manager on the dynamic allocation strategies team at William Blair & Co. LLC in London. Among eurozone finance ministers there does not appear to be an consensus going forward on a unified fiscal policy, he said.
"The ECB can't change that and it's one of the reasons why the eurozone will remain an unresolved issue," he said. "It will not necessarily lurch from crisis to crisis, but will always be affected by this."
As the limits of monetary policy are realized and "skepticism about its effectiveness is growing, financial markets will probably turn their attention to other policy tools," said Silvia Dall'Angelo, London-based senior economist at Hermes Investment Management. She added that expectations surrounding fiscal policy, or coordination between monetary and fiscal measures, are rising.