Germany’s Schäuble: Time Is Near to End Central Banks’ Easy-Money Policies

easy-money-policy

Finance Minister makes remarks amid growing criticism in Germany of European Central Bank

German Finance Minister Wolfgang Schäuble called on governments in Europe and the U.S. to encourage their central banks to gradually exit easy-money policies, in the strongest sign yet of Berlin’s growing impatience with the ultralow interest rates of the European Central Bank.

“There is a growing understanding that excessive liquidity has become more a cause than a solution to the problem,” Mr. Schäuble said, comparing the move away from easy-money policies to ending a drug addiction.

The unusually blunt comments from Chancellor Angela Merkel’s closest political ally come as the ECB has repeatedly ramped up its stimulus in recent months, seeking to support economic growth in the face of rising global headwinds and financial-market volatility.

While Mr. Schäuble’s opposition to the ECB’s monetary policy is well known, the veteran politician has voiced his criticism more openly lately, suggesting Berlin is growing impatient amid a mounting popular backlash against a policy that has depleted the returns on the savings of millions of Germans.

Government officials and central bankers are preparing to converge on Washington, D.C., next week for the Spring meetings of the International Monetary Fund, where they are expected to discuss policies to revive global growth.

Speaking in Kronberg near Frankfurt late Friday at a prize ceremony organized by a German economic think tank, Mr. Schäuble said he had just discussed central-bank policies with his U.S. counterpart, Treasury Secretary Jacob Lew.

“I just said to Jack Lew that you should encourage the Federal Reserve and we should encourage the European Central Bank and the Bank of England in a concerted action, to carefully but slowly exit,” Mr. Schäuble said. In the U.S., the Treasury secretary doesn’t have authority over the Federal Reserve, which is tasked with setting monetary policy.

The ECB has twice ramped up its €1.5 trillion stimulus since December, most recently in March, when it rolled out a series of rate cuts, cheap loans for banks and an acceleration of bond purchases. Top ECB officials have stressed in recent days that they are ready to do even more to support the bloc’s economy.

Meanwhile Federal Reserve officials have signaled that the U.S. central bank will raise rates only gradually until the global economy picks up steam, according to the minutes of their March policy meeting. Japan’s central bank stunned the markets in January by setting the country’s first negative interest rates.

The ECB’s actions have faced growing criticism in Germany, where the economy and labor market are in robust health, but ultralow rates have hurt savers setting money aside for retirement.

Despite Germany’s insistence on central-bank independence, Mr. Schäuble has expressed growing concern about easy money policy in recent months. “I am not happy about low interest rates. I would prefer higher interest rates,” Mr. Schäuble said on Friday. He said he would meet ECB President Mario Draghi next week to discuss how to counter the growing criticism of ECB policies in Germany.

Jens Weidmann, who sits on the ECB’s governing council as president of Germany’s Bundesbank, opposed the ECB’s latest package of measures, which he has said went “too far.”

Mr. Schäuble also laid part of the blame for the rise of the populist Alternative for Germany at the ECB’s door. In state elections last month, the party made historic gains at the expense of Chancellor Merkel’s Christian Democrats and her coalition partners, the Social Democrats.

“I said to Mario Draghi…be very proud: you can attribute 50% of the results of a party that seems to be new and successful in Germany to the design of this [monetary] policy,” Mr. Schäuble said.

Peter Praet, the ECB’s top economist, hit back at the bank’s German critics on Thursday, arguing that its actions since June 2014 have “led to a substantial easing of financial conditions” that supported economic growth. Without them, eurozone inflation would have been around half a percentage point lower in 2016 and 2017 than the ECB currently forecasts, excluding the measures adopted last month, he said.

“[They say] money is worthless,” Mr. Praet said of the ECB’s German critics. “Thank you very much, give it to me if it is worthless.”

One major concern in Berlin is the recent debate about helicopter money, an extreme form of stimulus that involves direct distribution of money by central banks to the public. The concept has risen to prominence in recent months as central banks across advanced economies seek new ways to drive up stubbornly low inflation and convince investors they haven’t run out of policy ideas.

Mr. Draghi said last month that helicopter money was “a very interesting concept,” but his top officials have since sought to pour cold water on the idea.

“We are not considering anything of that sort,” ECB Vice President Vítor Constâncio told a committee of European lawmakers on Thursday.

German magazine Der Spiegel on Saturday cited unnamed finance ministry officials as saying that the government would consider legal action against the ECB if it adopted helicopter money.

A finance ministry spokesman said Saturday that the central bank was independent in its decisions, but that such “independence only exists within the limits of its legally given mandate.”

“It’s not true that the government is examining legal moves,” the spokesman said.

Souce: WSJ


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