01 April 2019

ECB: Sabine Lautenschläger: Interview with Der Standard

Can you enlighten us: is the ECB stealing interest income from savers, are savers being dispossessed? Many German economists and politicians are convinced of exactly that, leading them to harshly criticise the ECB leadership under Mario Draghi.

I appreciate that people are concerned, it's true that putting money into a savings account these days will earn you very little interest. But it's also true to say that people can only save if they have a job and earn enough money to put some savings aside. Our monetary policy has made an important contribution to boosting employment and wage growth. And people are not only savers, but also entrepreneurs and home buyers, who benefit from low interest rates. So the question we need to ask ourselves is: if the ECB had not taken certain measures in the past, what state would the economy be in today?

And how would you answer that?

There was a high risk of deflation in the euro area. Deflation would have meant falling prices, with people therefore postponing their purchasing decisions in anticipation of prices falling even further. At the same time, firms would have reined in investment and there would have been job cuts. That is a vicious circle. So it was absolutely right to counteract this danger by lowering interest rates and to generally loosen monetary policy in order for us to bring inflation to a level below, but close to, 2%.

One serious criticism of the ECB's programme is that it is effectively only subsidising the southern crisis countries. The central bank has pushed interest rates down. Without this life-saver, Italy would have gone bankrupt long ago and the euro would have been history.

Hold on a moment. All have benefited from the measures. The savings for taxpayers resulting from lower interest rates were nowhere as high as in Germany.

But isn't it also true that the ECB is indirectly financing governments here? Any creditor who invests in Italian or Spanish government bonds knows that the ECB will buy these bonds off them in the future.

Even though I am not the strongest advocate of our government bond purchases, we do not finance individual governments with them, directly or indirectly. Our aim is to maintain price stability. Thanks to our bond purchases, interest rates go down and loans become cheaper, primarily benefiting households and businesses. Besides, we have a very clear set of criteria for the timing, selection and volumes of our government bond purchases. Our parameters ensure that the private market for government bonds remains intact. One sign of the continuing relevance of this market is the divergence in the prices for German, Italian and Spanish government bonds.

Another criticism is that the ECB defers problems rather than solving them. Owing to the low interest rates, cheap credit is even available to firms that are no longer competitive, and would otherwise have gone under long ago. These zombie firms tie up capital and employees, all of which is harmful to economic efficiency.

We have only bought corporate bonds with high ratings. This has indeed improved financing conditions predominantly for the companies in question, but also indirectly for the firms with lower credit standing. However, banks lending to companies must take the risk involved into account in their financing conditions. So, basically, the higher the risk, the more expensive the loan. Moreover, European banking supervision requires more capital to cover the risk and looks very closely at credit standards. And indeed: not every group in the euro area can borrow for five years at less than 3% interest. There are differences not only across countries, but also across firms within the individual countries.

Full interview

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