domingo, 17 de abril de 2016
Behind Wolfgang Schäuble’s attack on the ECB
Behind Wolfgang Schäuble’s attack on the ECB
German finance minister’s biting criticism sets off political alarm bells for Mario Draghi.
By MATTHEW KARNITSCHNIG 4/18/16, 5:30 AM CET
Wolfgang Schäuble has never been a politician to mince words.
He recently called an idea by German Economy Minister and Social Democrat leader Sigmar Gabriel to do more to help poor Germans and not just focus on refugees “pathetic.” During a dispute with Angela Merkel last year over whether to force Greece out of the eurozone or extend it further assistance, the finance minister, consistently rated one of the country’s most popular politicians, said if anyone tried to force his hand, he would simply “go to the president and ask to be relieved of my duties.”
Yet even for a politician whose criticism of colleagues can border on abuse, Schäuble’s recent assault on ECB President Mario Draghi stands out.
Speaking at an awards ceremony outside Frankfurt on April 8, Schäuble told the audience the rise of right-wing populist Alternative für Deutschland party was due in large part to the ECB’s loose monetary policy.
“I told Mario Draghi … you can be very proud,” according to a report by a Dow Jones journalist who was present.
The comments have been widely interpreted as an attack on the ECB’s independence. While it’s not uncommon for eurozone politicians to criticize the ECB, senior German politicians have been assiduous in avoiding even the hint of interference. It was Schäuble’s own Christian Democrats who insisted the principle of independence be enshrined in the ECB’s charter.
That Schäuble broke that taboo has sparked a range of theories over the reason for the attack. The most common conclusion is that the German government is much more concerned about the AfD’s rise than it has let on.
Upset by ‘easing’
The core of Schäuble’s critique isn’t new.
In an effort to resuscitate the eurozone’s stagnant economy, the central bank has aggressively cut interest rates and flooded the market with liquidity by buying government debt, a policy known as quantitative easing.
Germany’s economic policy establishment, led by the Bundesbank, has long been skeptical of the ECB’s moves on the grounds that Draghi is sowing the seeds for disaster. Cutting rates and pumping money into the market can fuel bubbles, they warn.
The more immediate concern for Schäuble and his conservative allies is the effect the policy is having on Germans’ nesteggs. Germany has traditionally been a country of savers. Low rates mean they earn no interest, stoking fears the euro could destroy their savings.
Schäuble’s primary motivation for the attack would appear to be purely political
Though the AfD’s success is mostly due to its hard stance on refugees, the party was founded as an anti-euro movement, a message that resonates with many of the same voters.
Schäuble’s comments come amid growing frustration with the ECB’s policy among German savings banks, insurers and other influential interest groups.
“The negative rates are difficult for banks to bear,” Hans-Walter Peters, the new president of the German Banking Association, said last week. “We have to ensure that our banking system remains competitive.”
While the impact of low interest rates may be most obvious on savings bank deposits, what really concerns German policy makers is what it will mean for retirement plans. Many Germans, especially core conservative voters, have put money into annuities and other plans that invest in low-risk government debt. But thanks to the low rates, those investments aren’t appreciating.
The development has set off alarms in the CDU because retirement policy has long been seen as one of its core strengths. The AfD’s attacks threaten to erode that advantage.
The retirement question has risen to the fore of the national debate in recent weeks. Conservative leaders are currently exploring ways to shore up the pension system to assuage voter concerns. The issue was expected to top the agenda at meeting between Merkel and key party leaders in Berlin Sunday evening.
The political pressures confronting Merkel and Schäuble are familiar to the ECB. Still, the sharpness of Schäuble’s comments caught many in the central bank, especially Draghi, off guard. Even as the bank has pursued a flurry of controversial measures in recent years, from bond buying to support for Greek banks, it has enjoyed Berlin’s tacit support.
Germany has been one of the main beneficiaries of the policy because the low rates mean it can borrow for almost nothing. That has helped the country balance its budget, a major political victory for Merkel and her finance minister.
One shouldn’t confuse a reference to the difficult effects of the ECB’s policy with attacks on its independence” — Wolfgang Schäuble
The worry at the ECB is that Berlin, having already benefited, is now preparing to pull its support to help head off the AfD. National elections coming up next year, and the party is currently polling at about 14 percent.
The ECB keeps a close eye on German public opinion. By virtue of its size and the power of its economy, Germany has always been the eurozone’s fulcrum. Some in the ECB say losing German public support for the euro would be a much greater threat to the currency than the exit of Greece or other periphery countries.
The concern in Frankfurt is that Schäuble’s potshots will invite more criticism, fueling the narrative that the ECB is a danger to Germany’s economic well-being.
What has also confused many inside and outside the central bank is the timing of the Schäuble’s critique. The measures the ECB has put in place, which are very similar to steps taken by the Federal Reserve in the U.S. and the Bank of England, can’t be easily reversed. Doing so at this stage, as Schäuble well knows, could lead to market panic.
So Schäuble’s primary motivation for the attack would appear to be purely political.
Bundesbank to ECB’s rescue
The German criticism has brought the ECB’s defenders out in force.
“German critics of the ECB make two big mistakes,” a group of influential European economists wrote in the Frankfurter Allgemeine Sonntagszeitung last week. “First, they overlook the fact that, for all the side-effects of current ECB monetary policy, the consequences of inaction would be much worse. Second, they offer no constructive alternative to monetary policy, and risk damaging the ECB’s credibility with their criticism.”
Even the Bundesbank, a consistent critic of Draghi’s policy choices, chided Schäuble for going too far.
During a joint appearance with Schäuble at the International Monetary Fund’s annual meeting in Washington on Friday, Bundesbank President Jens Weidmann said he saw no connection between ECB policy and the AfD’s success. He also stressed the importance of the ECB’s independence, calling it a “privilege and a duty.”
Schäuble said he had been misunderstood and hadn’t questioned the bank’s independence.
“One shouldn’t confuse a reference to the difficult effects of the ECB’s policy with attacks on its independence,” he said.
The German minister met separately with Draghi in Washington over dinner to reassure the banker the he respected his independence.
In Washington, Schäuble downplayed his previous comments, saying he was trying to illustrate that voter concerns over their savings were having a tangible impact on election results.
“That’s not the ECB’s fault,” he said.