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.
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