Spiegel Online International reports: Business and political leaders in Germany are increasingly frustrated with the monetary policies of European Central Bank head Mario Draghi. Recently, the confrontation has threatened to become damaging to the euro zone.
The alienation between Germany and the ECB has reached a new level. Back in deutsche mark times, Europeans often joked that the Germans “may not believe in God, but they believe in the Bundesbank,” as Germany’s central bank is called. Today, though, when it comes to relations between the ECB and the German population, people are more likely to speak of “parallel universes.”
ECB head Draghi doesn’t understand why he is getting so much resistance from the country that has profited from the euro more than any other. Yet Germans blame Draghi for miniscule yields on savings accounts and life/retirement insurance policies. Frustration is growing.
Draghi has pushed the prime rate down to zero and now even charges commercial banks a fee for parking their money at the ECB. He has also bought almost €2 trillion worth of bonds from euro-zone member states, making the ECB one of the largest state creditors of all time.
During his most recent appearance before the Frankfurt reporter pool, he went even further. The idea of pumping money directly into the economy, he said, was a “very interesting concept,” with a helicopter to distribute the money across the country if necessary, as economists have half-jokingly recommended. Doing so is seen as a way of boosting the economy. German money being thrown out of a helicopter: It would be difficult to find a more fitting image to show people that the money they have set aside for retirement may soon be worth very little.
The criticism of Draghi had already been significant, but his public ruminations about so-called “helicopter money” have magnified it to extreme levels. Even economists that tend to back the ECB, such as Peter Bofinger, who is one of Merkel’s economic advisors, are now accusing Draghi of constantly “pulling new rabbits out of the hat.”
Most dangerous for Draghi, however, is the displeasure from the German Finance Ministry. A few weeks ago, Finance Minister Wolfgang Schäuble warned the ECB head that his ultra-loose monetary policies could “ultimately end in disaster.” The fact that Schäuble said anything at all is rather surprising, as were the words he chose. Out of respect for the ECB’s independence, finance ministers tend not to comment on decisions made by the central bank.
The Concerns of Savers
The most pointed attacks have come from the Bavarian CSU (Christian Social Union). With the refugee crisis having faded into the background, party head Horst Seehofer has made his opposition to Draghi his next major issue. Bavarian Finance Minister Markus Söder has already set the tone: “The zero-interest policy is an attack on the assets of millions of Germans, who have placed their money in savings accounts and in life insurance policies,” he says.
Money in the Mattresses
It is mostly life/retirement insurance policies that are suffering. Insurance providers have primarily invested their customers’ money in sovereign bonds. But returns are extremely low, in part because of the massive ECB purchases of such bonds. Banks, for their part, must accept certain losses because they are not able to pass on to their customers the negative interests on deposit they pay to the ECB. To offset the losses, they have raised fees, which may ultimately encourage customers to consider simply keeping their money in their mattresses at home.
That, too, is a reason for German frustration with Draghi. In hardly any other euro-zone country is the financial investment sector so dominated by savings accounts and insurance policies.
The divide between Berlin and Frankfurt is intensifying the destructive forces that are already buffeting the European common currency zone — forces that may soon prove uncontrollable. Germans are distancing themselves from Europe’s central bank and Europe’s central bank is distancing itself from the Germans. Is there a danger it could lead to an unwanted disintegration of the euro zone?