It appears as though the ECB has had enough of the thorn in its side that is Germany in this latest round of back and forth, and has taken to what it does best: jawboning. In an article published today in the Frankfurter Allgemeine Sonntagszeitung newspaper, executive board member Benoit Coeure writes a rambling article defending ECB's policies, tells Germany that the ECB is the reason for its economic success, and downplays the issues that any savers may be having under NIRP.
Leading up to the article, Germany's finance minister Wolfgang Schauble has been increasingly vocal with his displeasure at Draghi's policies, first by saying that the loose monetary policies would end in disaster, and hinting that Berlin would consider taking the ECB to court if ever Draghi introduced the "very interesting concept" of helicopter money (bypassing the banking sector and distributing money directly to companies, consumers, and states). Then, a few days later, Schauble said that monetary policy was largely exhausted globally, and that the ECB is causing extraordinary problems in reference to negative interest rates that are hammering savers. This was apparently enough to expose the ever so thin skin of the European central planners.
Benoit's article opens by ironically asking if the ECB is stubborn because its continuing policies that aren't working.
Is the ECB stubborn because we are adhering to our monetary policy despite strong criticism? No. We are complying with a precise task that was conferred on us. The EU treaties gave the ECB a narrow price stability mandate.
Then, a bit of posturing is done to separate Germany's influence in the public court of opinion by whining that other institutions (i.e. Bundesbank and German Finance Ministry) shouldn't impact ECB's decision making.
To pursue this deliberately narrow objective, the ECB has been given a great amount of independence, building on the successful experience of the Deutsche Bundesbank. This focus is in line with the economic concept of “monetary dominance”. To ensure this, central banks must be assigned a well-defined objective. They must also be granted sufficient discretion when determining and carrying out their measures.
Monetary dominance implies that in carrying out its mandate a central bank may not make itself dependent on the specific decisions of other institutions. A fundamental assumption underlying European monetary union is therefore that different institutions must act independently within their mandates.
The article goes on to defend the ECB policies that aren't working, and even uses "global developments" as a scapegoat as to why printing money doesn't lead to any actual demand in the real economy (thus no inflation).
Our latest package, with its increased size of purchase volumes and its emphasis on credit to households and companies, is proving effective, as recently confirmed by our bank lending survey and, more generally, by the recovery of economic activity throughout the euro area.
We are confident that our measures will bring inflation back on a sustainable path consistent with our objective of price stability. However, there are compelling reasons to suggest that inflation in the euro area will go up only gradually. They include a legacy of private and public debt that was too high, which led to a fall in economic activity and an increase in unemployment. More recently, global developments which are having a negative impact on inflation have added to this.
After the very mediocre attempt at setting up the ECB's independence as paramount, and defending policies that don't work, the focus then turns to Germany, where Benoit boldly says that without the ECB's policies, Germany's economic success wouldn't be attainable.
But even under a very flexible interpretation of our medium-term inflation objective, I am convinced that not acting would have meant failing in our mandate. Without our measures, current inflation would be much lower and the inflation outlook would be much worse. Moreover, economic activity would be subdued, there would be fewer jobs, and a sound public budget would be more difficult to achieve, even in Germany.
If that wasn't enough to get under the Germans skin, Benoit sprinkles on a few nuggets of socialism…
In Germany, the ECB has recently been repeatedly criticised for hurting savers through the currently very low interest rates. But people are not just savers – they are also employees, taxpayers and borrowers, as such benefiting from the low level of interest rates. Thanks to improved economic conditions, stimulated not least by monetary policy, real income and employment in Germany have increased in recent years. In other words, we need low interest rates now to ensure a normalisation of economic conditions, including higher returns on savings in the future.
Read more here.
In other words – savers are not the only people impacted by monetary policy, and in essence, if they need to suffer for the greater good of everyone else, than so be it.
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Incidentally, if the article was titled "Only The Dumb Save",
Then it would have been much more appropriate.
— Northy (@NorthmanTrader) May 1, 2016
Of course the satirical bent of the article takes nothing away from the fact that they are saying savings is of course the right thing but in a world of NIRP it's stupid.