27 September 2019

Financial Times: German scepticism of the ECB reveals a eurozone paradox

Germany’s dissent feeds concerns that Europe’s monetary union, rocked to its foundations in the sovereign debt and banking sector crises of 2010-12, is still not solid enough, warns Tony Barber.

In Germany, unhappiness with the ECB extends way beyond the rarefied realm of central banking. After Mario Draghi, the ECB president, announced the bank’s latest monetary stimulus measures on September 12, Helmut Schleweis, the head of the German Savings Banks Association, denounced the steps as “disastrous”. Bild Zeitung, Germany’s bestselling tabloid, likened Mr Draghi to a vampire sucking the blood of ordinary German savers.

Across the political spectrum, and across society, mistrust of the ECB’s actions is widespread. Chancellor Angela Merkel has lent quiet support to Mr Draghi and taken care not to make public criticisms of his initiatives. However, many politicians, economists, business leaders and media pundits display less restraint. The flood of attacks on Mr Draghi is submerging the once sacrosanct German principle that a central bank must be independent from political pressure. [...]

With borrowing costs so cheap and the economy on the edge of recession, a chorus of voices is calling for Germany to loosen its fiscal strings and launch an infrastructure investment plan. [...]

Germany’s caution also illustrates a lack of firm direction at the heart of government. Ms Merkel is near the end of her long reign. Each ruling party senses that the CDU-SPD partnership — the third “grand coalition” out of four governments since 2005 — has outlived its usefulness. Despite party squabbles, a consensus exists that Germany should not be lured into grand schemes of European integration that cast Berlin in the role of paymaster of a “transfer union”. Germany offered a lukewarm response to the proposals for deeper integration by President Emmanuel Macron of France. At the ECB, the problem for Christine Lagarde, the IMF chief who will replace Mr Draghi on November 1, is that Germans are not the only critics. Nine ECB council members expressed opposition or reservations about the new measures at the September 12 meeting. They included the national central bank heads of Austria, France and the Netherlands, as well as Germany. [...]

In principle, Europe’s central bankers and politicians can strike a bargain that balances tighter monetary policy and fiscal expansion. Without such a deal, the risk is that markets will focus on the eurozone’s faultlines and the ECB’s internal disputes. As long as Germany is the odd man out, doubts about the eurozone’s stability will persist.

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