German lawmakers to quiz ECB's Draghi over monetary policy

By Michael Nienaber

BERLIN (Reuters) - European Central Bank President Mario Draghi is set to face tough questions from German lawmakers on Wednesday about the bank's ultra-loose monetary policy, just as the ECB is considering even more stimulus to revive inflation.

Relations have cooled between Europe's largest economy and the euro zone's central bank, which has cut interest rates aggressively in recent years and pumped more than a trillion euros into the economy through asset purchases.

But with growth in the 19-member euro zone still mediocre and inflation barely above zero - well short of the ECB's target of nearly 2 percent - the bank's critics say its monetary policy has reached its limits.

Draghi will address the Bundestag lower house of parliament's European Affairs committee behind closed doors from 1530 (1330 GMT) and address the public around 1700 (1500 GMT).

Gunther Krichbaum, the head of the European affairs committee who invited Draghi to Berlin, told Reuters the Italian central banker should expect a frank discussion.

"We're parliamentarians, not diplomats. Of course there'll be critical questions, but Draghi can handle this," Krichbaum said, adding lawmakers would ask him about the ECB's bond purchase programme and the health of Italy's banking sector.

Krichbaum said that the ECB's monetary policy was actually like an invisible bailout for the indebted countries of southern Europe and that this was never authorised by parliaments.

"Of course, the ECB is independent. But with its current monetary policy, the ECB under Draghi is going quite actively to the limits of its mandate," Krichbaum added.

Finance Minister Wolfgang Schaeuble, who is not planning to attend Draghi's hearing, has repeatedly said interest rates are too low and a cause of serious concern because they are eroding pensioners' savings and hurting banks' profit margins.

In spring, he even blamed the ECB's policies for the rise of the right-wing Alternative for Germany (AfD) which was founded in 2013 to oppose euro zone bailouts and has since morphed into an anti-immigration party. [nL8N1C00GU]

In a guest article published in the staunchly conservative FAZ newspaper a day before Draghi's visit, Schaeuble avoided any direct attacks on the ECB or its president.

Instead he called on euro zone governments to do their part by boosting growth through structural reforms, which would help the ECB to start phasing out its ultra-loose monetary policy.

"We'll only be able to leave this low-interest phase behind us if we have more sustainable growth in Europe," said Schaeuble. "We won't achieve this if we continue to walk on old paths with new money, but only if we change course."

The cooperative banking association BVR has also called on the ECB to change course.

"It's time to talk about the phase-out of ultra-loose monetary policy," said BVR head Andreas Martin, adding that Draghi should give a clear view on the exit process when he is in Berlin.

(Editing by Hugh Lawson)