FRANKFURT – Long-simmering discontent is boiling over among German conservatives opposed to the European Central Bank’s stimulus policies, causing a clash of words as the ECB defends its independence from political interference.
The outbreak of indignation presents another challenge for Draghi and the ECB as they try to convince financial markets that the central bank still has tools left to raise worryingly low inflation and support the eurozone economy, by some measures the globe’s No. 2 economy after the United States.
German grumbling over the low interest rates set by the ECB — and their impact on savings and retirement plans — has been part of the background noise since the bank’ launched its stimulus measures to prevent a breakup of the eurozone in 2012.
But politicians and news media have turned up the volume sharply in recent days.
The ECB lowered its benchmark rate to zero at its last meeting March 10, and its policy of buying bonds with printed money has driven some bond market interest yields below zero. The result has been near-zero returns on more conservative forms of savings.
“The Expropriation of the Savers” read the top headline on Sunday’s edition of the Welt am Sonntag national newspaper, with a cartoon of a saver showing his empty pockets.
Officials of the Christian Social Union, the Bavarian sister party of the Chancellor Angela Merkel’s governing Christian Democrats, have been particularly sharp recently in attacking Draghi. Alexander Dobrindt, a CSU politician serving as minister of transport in Merkel’s cabinet, was quoted as calling the ECB’s policies “very risky” and of sending a message that “savings and old-age provision make no sense.”
Things reached a new level on Friday evening, when Finance Minister Wolfgang Schaeuble, a longtime stimulus skeptic, went off on Draghi with unusual acidity.
According to news reports, Schaeuble blamed Draghi for the rise in popularity of the anti-immigration, anti-euro AfD party, or Alternative For Germany. “I told Draghi, be very proud, you can attribute 50 per cent of the support for a party that seems new and successful in Germany, to the explanation of this policy,” news reports quoted him as saying at an awards ceremony outside Frankurt. The AfD is polling at 12 per cent, well over the 5 per cent threshold to win seats in parliament. The next national election isn’t until 2017.
A ministry spokesman said he could neither confirm nor deny Schaeuble’s remark. The ministry issued a statement saying that Schaeuble “has always defended the independence of the ECB within the bounds of its mandate. This position has not changed.”
An ECB spokesman declined to comment on Schaeuble’s reported remark.
Savers the world over have been complaining about low interest rates for years. But the grousing is especially loud in Germany, where many people are shy of stocks and use interest-bearing life insurance investments as retirement savings. Draghi has rejected the criticism, citing studies that show actual returns aren’t that bad and reminding people that stimulus supports growth and the jobs that provide the money for savings in the first place.
Draghi appears to have additionally provoked German opinion by not expressly ruling out so-called “helicopter money,” a drastic form of stimulus that would involve printing money and finding a way to put it directly into people’s hands. The current bond-buying program use newly printed money, but puts the cash in the reserve accounts of banks, in hopes they will lend it on. Draghi called helicopter money “a very interesting concept” but said that the ECB hadn’t studied it and that it could present legal difficulties.
The ECB’s stimulus efforts are aimed at raising inflation from minus 0.1 per cent to a level just under 2 per cent that the bank considers best for the economy, and at supporting growth following a crisis over too much debt in some of the bloc’s 19 countries.
There are several ironies in the German criticism. It was Germans who pushed for the euro to have a central bank that is independent of political influence, modeled on their own Bundesbank, when the shared currency was created in 1999. And German exports have benefited from the drop in the euro — one of the side-effects of monetary stimulus — that has helped reduce German unemployment to an enviable 4.3 per cent.
Germans complaints, however, have not stopped Draghi. There are only two German members on the 25-member governing council. Both have express skepticism about increased stimulus, but haven’t been able to stop it.
ECB officials have pushed back, with top official Benoit Coeure saying at an economic conference Friday that “this is a country where our independence should be upheld.”
Erik Nielsen, the chief global economist at UniCredit bank, said in a note to investors that “the ECB’s fightback is needed and welcome” and doubted the criticism would deter the ECB.
“The good news is that in the most likely scenario we won’t need more ECB stimulus, but if needed, they won’t give up — and Germany will benefit from it, like the rest of Europe.”