04 November 2019

Financial Times: Brexit is a warning to Germany’s ECB-bashers

Christine Lagarde’s first official outing as ECB president was to visit Berlin to honour former German finance minister Wolfgang Schäuble, which underlines her biggest immediate challenge: to salvage and rebuild the fraying acceptance of ECB policies, above all in Germany.

She cannot do that on their own; German leaders need to show more support for the ECB’s legitimacy.

Germans have long seen themselves as the good citizens of the EU, a people that for historical reasons is unwaveringly committed to the European project. But Germany should not think itself immune to the British disease of mendacious Euroscepticism.

Long-running but misguided grumbles about the ECB — from ill-informed fears about its Target2 cross-border settlement system or the notion of “punishment rates” on German savers — bear worrying similarities to the antecedents of Brexit in the UK.

There, the press peddled a Eurosceptic misinformation campaign for decades with no pushback from those who knew better, giving room for anti-European forces such as the UK Independence party to grow. In Germany, too, lowbrow and highbrow media give free rein to criticism of the ECB based on caricature or ignorance, with the common thread that Germany is being taken advantage of. Alternative for Germany began as an anti-euro party — Mr Schäuble blamed its rise on the ECB — and quickly took on an illiberal and xenophobic hue. It occupies a similar part of the political spectrum as Nigel Farage’s successive electoral outfits in Britain.

For too long, UK leaders humoured the vilification of the EU by ignoring it or by finding use for some Europe-bashing of their own. By the time the UK referendum came around — itself a reaction by then-prime minister David Cameron to Ukip making inroads into his electoral base — it was too late to convince enough people of the true benefits of EU membership. German politicians and commentators should beware of making the same mistake.

It is worrying enough that the forerunners of the Brexit disaster can be glimpsed in the eurozone’s leading economy. It is doubly dismaying inasmuch as Germany has been one of the euro’s biggest beneficiaries, through stable terms of trade, enormous ECB efforts (belated but eventually forceful) to sustain domestic demand in the eurozone, and an escape from the even lower inflation and interest rates seen in Japan and Switzerland.

The problem goes beyond Germany. The more that eurozone citizens see their common central bank in narrowly national perspective, with net exporters only assessing its effects on savers and net importers only on borrowers, the greater the risk to its legitimacy.

The ECB needs to redouble its efforts at communicating to public opinion in its member nations. Ideally, national central banks should back its collective decision-making with their home audiences; there is no excuse not to counter outright misinformation vociferously. The Bundesbank must do better to discharge its responsibility in this regard.

So must the rest of Germany’s political, economic, and business community. In a welcome sign, Berlin has nominated Isabel Schnabel to fill a vacancy on the ECB’s executive board. A highly competent economist, Ms Schnabel has already proved her ability to hit back at delegitimising rhetoric against the central bank. Continuing to do so at home once she joins the ECB will be one of the most important contributions she could make. Germany and the euro will benefit if her compatriots follow her lead.

Full editorial on Financial Times (subscription required)

Laudatory speech by Christine Lagarde, President of the ECB, for Dr Wolfgang Schäuble

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