In the past month, Mario Draghi has come under near constant attack from German politicians. Always hostile to easy monetary policy, they blame the European Central Bank’s stimulus measures, in particular its embrace of negative interest rates, for squeezing Germany’s savers, fuelling the rise of extremist political parties and putting its financial institutions under strain.
These criticisms are unhelpful. What is unacceptable is the overt attempt to pressure the ECB into changing its course, including calls for “more German handwriting” in the central bank’s policies and a German as its next head.
Yesterday, the ECB president fought back. The central bank obeys the law, not politicians, he stressed, and its governing council is unanimous in defending its current stance and its independence. It was absurd to portray ECB policy as the product of an Italian president: similar measures have been adopted across the developed world.
Moreover, negative interest rates are working, he contended. Without the policies in place since 2014, deflation would have set in and eurozone growth would be substantially lower. Low interest rates were a symptom of low growth and inflation, and a necessary condition for any recovery.
If critics called the ECB’s credibility into question, they risked damaging business confidence - and the only result would be that the ECB would need to keep its policies in place for even longer to achieve its objectives.
Mr Draghi acknowledged, though, the concern that has made the ECB’s stance so difficult for German politicians to stomach. The first year of negative interest rates has not prevented European banks becoming more profitable in aggregate; but the policy is punishing Germany’s small savings banks, its pension funds and life insurers who are legally bound to guarantee a fixed rate of return. A monetary policy stance that makes sense for the eurozone economy may over time prove financially ruinous for the bloc’s biggest creditor country.
Yet the answer to this problem is not - as conservative German politicians apparently presume - to pressure the ECB to serve the national interests of a single powerful member. As Mr Draghi rightly pointed out, US pension funds and insurers did not collapse under the strains of prolonged near-zero interest rates. Germany’s institutions, whose losses are offset by substantial capital gains from the ECB’s bond-buying programme, are suffering primarily because of national regulation and their particular business model.
Berlin needs to accept responsibility for this problem, despite the political sensitivities at a time when the government is already struggling to contain criticism of its refugee policy. The ECB’s legal obligation is to bring inflation back to target, not to shield Germany’s savings system; and with Berlin blocking several of the alternatives, it may have little option but to keep interest rates near their current low level for some years to come.
This is why - despite the fighting talk - Mr Draghi was cautious about the scope for further easing. There is no hint that policymakers are ready to cut rates again, or even discuss helicopter money - which Berlin adamantly opposes. This is understandable - but it is time for a more open discussion of what policies would be politically possible, if further action is needed.
Trying to depict ECB policy as a battle between national interests undermines the foundations of European monetary union. This is not in Germany’s own interests. If Berlin wants European monetary union to succeed it must stop trying to create a clone of the Bundesbank, and back down.
