FRANKFURT: The European Central Bank (ECB), increasingly under fire in Germany over its ultra-loose monetary policies, is likely to go out of its way to defend its independence at this week’s governing council meeting, analysts said.
ECB President Mario Draghi “will respond to German politicians’ recent criticism by reiterating the bank’s independence and stressing that more support is still possible,” Capital Economics economist Jennifer McKeown said.
German Minister of Finance Wolfgang Schaeuble has been unusually frank about his growing displeasure at the ECB’s decision to slash interest rates to zero, suggesting that the policies were helping foment political unrest in Europe’s largest economy and aiding the rise of the anti-euro, anti-immigrant, Alternative for Germany (AFD) party.
German governments have traditionally steered away from commenting on ECB decisions so as not to be perceived to be trying to meddle with the central bank’s independence. However, record low interest rates are squeezing German banks’ profits and also hurting the country’s savers, and political figures are now speaking out.
Last week, Schaeuble was quoted in news reports as saying: “I told Mario Draghi; be very proud — you can attribute 50 percent of the results of a party that seems to be new and successful in Germany to the design of this [monetary] policy.”
The AFD was originally launched as an anti-euro platform, but has subsequently adopted a populist xenophobic message, on the back of which it made large gains in regional elections last month.
The ECB is battling to push up the rate of inflation in the eurozone to levels it considers compatible with healthy economic growth and insists its mandate must only take into account the eurozone as a whole, not individual countries.
The spat has led some unexpected allies to rally around Draghi.
French Minister of Finance Michel Sapin came to the central bank’s defense.
“France has learned, with difficulty, that the ECB’s independence must be respected absolutely and completely,” he said, urging Germany to show the same restraint it had so frequently preached to it and other countries in the past. “The Germans mustn’t lose their good habits.”
“Our German friends” should remember that they themselves had always stressed the need for the ECB to be independent, he added.
Even Bundesbank President Jens Weidmann — also an outspoken critic of the ECB’s policies — joined the fray.
“It’s not unusual for politicians to have opinions on monetary policy, but we are independent,” he said. “The ECB has to deliver on its price stability mandate and thus an expansionary monetary policy stance is appropriate at this juncture regardless of different views about specific measures.”
Weidmann, who has himself often been at loggerheads with Draghi over the ECB’s response to the threat of deflation in the eurozone, argued that the debate in Germany focused too narrowly on the consequences of low interest rates for savers.
“The debate does not focus enough on the broader macroeconomic consequences of monetary policy. People are not just savers; they’re also employees, taxpayers, and debtors, as such benefiting from the low level of interest rates,” Weidmann said.
ECB watchers said Draghi — never one to allow himself to be put under pressure — would use the news conference to assert the bank’s independence.
