Germany’s discomfort with the European Central Bank’s expansionary monetary policy has been known for years. So it’s a little odd to see commentators and politicians from other countries rush to censure Wolfgang Schäuble when the German finance minister should make his unease known.
The normally sober Financial Times calls Schäuble “desperate” for attacking the ECB and alleges that other conservatives in his country are conspiring with commercial banks to whip German savers into a revolt against the Frankfurt-based central bank.
If Schäuble has doubts about the bank’s policy, “such conversations are best conducted in person, not in public,” according to the Financial Times.
Since central bankers correctly regard credibility and independence as one of their most powerful tools, they will go out of their way to be seen resisting political pressure.
Schäuble’s counterpart in Paris, Michel Sapin, chimed in, saying, “France learned the hard way that one must absolutely, completely and fully respect the independence of the central bank. I hope our German friends remember this point, which they helped prevail.”
So what horrible things did Schäuble say?
Truth is, we don’t know for sure.
He is said to have blamed low interest rates for the rise of the Euroskeptic Alternative für Deutschland party at a closed-door meeting near Frankfurt on Friday — just the sort of private event where the Financial Times wants him to vent such opinions.
In public, Schäuble has expressed concern but stopped short of advising the ECB to do anything in particular.
For example, he told the Reuters news agency this week that low interest rates are “causing extraordinary problems for the banks and the whole financial sector in Germany,” including retirement provisions.
That, he warned, “does not necessarily strengthen citizens’ readiness to trust in European integration.”
Which is little more than a statement of fact. When Germans see their savings lose value and their borrowing costs go up and blame the ECB, of course that doesn’t inspire confidence in the European project.
Handelsblatt reports that large German banks share the finance minister’s apprehension. Near-zero interest rates mean losses on their deposits business, which makes loans more expensive, which hurts investment and growth.
Pension schemes, which are based on a combination of savings and investment, are affected as well.
For the whole German economic and social model, prolonged periods of low interest rates are just disadvantageous.
The Financial Times recognizes as much in passing. “It is no doubt frustrating for savers to see their interest payments dwindle to nothing, or even turn negative,” it writes. (You think?)
But the newspaper still maintains that Schäuble is wrong to criticize the central bank’s policy because — and this is the crux of the matter — it agrees with it.
It would be utterly absurd if a central bank held interest rates well above zero, ensuring that the economy spiraled down a dark hole of deflation and recession, simply to maintain the unearned income of a particular segment of the population.
By “unearned income” they mean savings and by “particular segment of the population” they mean eighty million Germans, or one in four residents of the eurozone.
But there is a fair argument to be made that higher interest rates could push weaker economies in the south of Europe back into recession. Which is why Southern European leaders have publicly called on the ECB for years to keep rates low and even finance their borrowing costs directly. Where were the defenders of central bank independence then?
The simple reality is that different countries in the eurozone have different interests. Some, like France and Italy, benefit from cheap money policies. Others, like Germany, don’t. There is nothing improper about the German finance minister pointing that out.