Business

The knives are out between Germany and the ECB

The – many – German recriminations with regard to the monetary policy of the European Central Bank (ECB) are not new: strafzinsen (“punitive rates”) punish savers; the banking system is weakened by the rent of the negative money which feeds the real estate bubbles. While initially limited to price stability, the ECB is surreptitiously expanding its mandate. Which infuriates the Germans. The boss of Allianz, Europe's leading insurer, has even recently accused the ECB of“aggravate the risks”.

The bad mood far exceeds the players in finance. The tabloid Bild recently published a caricature of Mario Draghi wearing a long cloak, fingers crooked, with the caption “Count Draghila”. The politicians' criticisms of the central bank are, however, more moderate than in 2016. At the time, Finance Minister Wolfgang Schäuble accused the easy money of promoting the rise of populism. At the ECB, the idea that the monetary tools used are “Unorthodox” is hardly disputed. On the big issues, outgoing President Mario Draghi can boast of having imposed his vision.

Internal dissensions

Yet his tactical choices are increasingly challenged internally. At least seven members of the bank's board appear to have objected to the resumption of quantitative easing, which they fear will do more harm than good. On 2 October, Bundesbank Governor Jens Weidmann explained that he would oppose any attempt to ease the ECB's supervision of bond purchases.

Several central bank directors have also publicly expressed their doubts. Mario Draghi believes that such dissent threatens the credibility of the ECB and continues to urge national governments to spend more to bring down the pressure on the central bank. In Germany, where public debt is low and borrowing costs are negative, the country is in desperate need of investment and the recession seems imminent. Yet the ruling coalition is clinging to its refusal to increase the public debt. Henrik Enderlein, Institute Hertie fears that these postures are used mainly to fuel the economic immobilisme of the government “By maintaining the idea that in case of a real problem, the ECB will always be there to come to the rescue”. Frederik Ducrozet, of Pictet Wealth Management, emphasizes that low interest rates make it easier to relax fiscal policy. The Bundesbank recognizes that low interest rates have saved the German state € 368 billion between 2008 and 2018.

New heads

Before the end of the month, the German Finance Ministry will appoint a successor to Sabine Lautenschläger, a monetary hawk who resigned from the ECB's Executive Council in September. Isabel Schnabel, who is part of the German Council of Economic Experts, seems well placed to replace her. She criticized the virulent tone of the debate on the country's monetary policy. Such a choice would signal that Berlin wants to lower the temperature. Christine Lagarde, who will replace Mario Draghi on 1st November, would certainly be relieved: she must pronounce three days later her first speech as President of the ECB.

Cartoon in the German tabloid Bild. “Count Draghila aspires our accounts. Under his mandate, we lost billions. ” This drawing by the President of the European Central Bank Mario Draghi illustrates the rumblings of savers across the Rhine face its policy of low interest rates.

Xinhua News Agency / SipaSabine Lautenschläger, former member of the Executive Board of the ECB. Opposed to a loose monetary policy, she resigned in September.

The – many – German recriminations with regard to the monetary policy of the European Central Bank (ECB) are not new: strafzinsen (“Punitive rates”) punish savers; the banking system is weakened by the rent of the negative money which feeds the real estate bubbles. While initially limited to price stability, the ECB is surreptitiously expanding its mandate. Which infuriates the Germans. The boss of Allianz, Europe's leading insurer, has even recently accused the ECB of“Aggravate the risks”.

The bad mood far exceeds the players in finance. The tabloid Bild recently published a caricature of Mario Draghi wearing a long cloak, fingers crooked, with the caption “Count Draghila”. The politicians' criticisms of the central bank are, however, more moderate than in 2016. At the time, Finance Minister Wolfgang Schäuble accused the easy money of promoting the rise of populism. At the ECB, the idea that the monetary tools used are “Unorthodox” is hardly disputed. On the big issues, outgoing President Mario Draghi can boast of having imposed his vision.

Internal dissensions

Yet his tactical choices are increasingly challenged internally. At least seven members of the bank's board appear to have objected to the resumption of quantitative easing, which they fear will do more harm than good. On 2 October, Bundesbank Governor Jens Weidmann explained that he would oppose any attempt to ease the ECB's supervision of bond purchases.

Several central bank directors have also publicly expressed their doubts. Mario Draghi believes that such dissent threatens the credibility of the ECB and continues to urge national governments to spend more to bring down the pressure on the central bank. In Germany, where public debt is low and borrowing costs are negative, the country is in desperate need of investment and the recession seems imminent. Yet the ruling coalition is clinging to its refusal to increase the public debt. Henrik Enderlein, Institute Hertie fears that these postures are used mainly to fuel the economic immobilisme of the government “By maintaining the idea that in case of a real problem, the ECB will always be there to come to the rescue”. Frederik Ducrozet, of Pictet Wealth Management, emphasizes that low interest rates make it easier to relax fiscal policy. The Bundesbank recognizes that low interest rates have saved the German state € 368 billion between 2008 and 2018.

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