The European Central Bank’s (ECB) controversial policy of ultra-low interest rates continues to draw criticism and German politicians in particular have demanded its president, Mario Draghi, bring them to an end. EURACTIV Germany reports.
euractiv.de spoke with MEP Jakob von Weizsäcker (SPD) who sits on the European Parliament’s Committee on Economic and Monetary Affairs.
In an attempt to stave off deflation, the ECB cut interest rates: that’s monetary policy 101. Yet the institution still comes in for a great deal of criticism from Germany. Do you understand why this is the case?
I think that this type of criticism is wide of the mark. True, the ECB’s remit is to keep the currency stable and keep inflation under 2%. To stave off deflation, interest rates have to be lowered. But that isn’t so easy when interest rates are already at or approaching zero. If interest rates get too low, then savers are just going to hold on to their money. That’s why the ECB has launched its bond purchasing programme. Interest rates on long-term loans can go down, once the spot-rate reaches zero. This can stimulate the economy.
That is why I think that this criticism of Mario Draghi is unfair. He’s being made a scapegoat for national governments who, even after all these years of the eurocrisis, still cannot agree on a sustainable solution for the eurozone’s future. Attempts to dump this on the ECB’s doorstep are just national governments’ transparent way of trying to cover their own political failures and divert attention.
A prime historical example of the negative impact of low inflation is the so-called “lost decade” experienced by Japan in the 1990s, when unemployment rose, the economy stagnated and its industry lost its top international ranking. Do you think the situation in Europe threatens to develop in a similar fashion?
It’s true that both our and the Japanese’s problems started with big financial crises. One of the main problems in Japan at the time was the slow redevelopment of the financial sector, in particular, the rise of zombie banks. The United States learned from this mistake and in 2008, after the crisis, quickly reorganised its banking sector. The EU has, unfortunately, not reacted as quickly. It’s understandable, because we have had to invent the Banking Union from scratch. But a faster and more thorough clean-up of the European financial sector would have been better for our economic recovery.
An important difference between us and Japan is that their interest rates were somewhat unique to them, while our problems are shared by countries worldwide. It could also be that we will have to live with this problem of low interest rates for a longer period of time.
Going back to how things stand in Germany: has Berlin’s economic policy decoupled from that of the rest of the EU?
Interest rates are low globally at the moment. One reason for that is that a lot of people want to save their money and not a lot want to borrow money. It could be that this is just a temporary blip and that the supply/demand balance of savings will improve once again. But we can also not exclude the fact that we may be in a phase of “global saving glut”, as demographic changes mean people are saving for their retirement.
Nevertheless, Germany has repeatedly called on the ECB to raise interest rates. Is this a case of Berlin failing to engage with European solidarity, pursuing the interests of German savers, even if it stalls the European economy?
Those with a lot of savings want high interest rates. People with debts, families with mortgages or start-ups, want low interest rates. This is neither unhealthy nor surprising in an open society such as ours. But monetary policy should not be dictated by this. The ECB is independent, for good reason, so that it can follow its mandate and not just listen to the loudest voices.
Criticising the ECB does little to help the euro. What would really help would be if the European governments collaborated to give the euro better structure and architecture. Once the United Kingdom’s referendum is done and dusted, German Chancellor Angela Merkel and French President François Hollande should come together to launch a German-French intiative to this effect.