- German current account surplus contributes to low rate era
- ECB President calls for institutional reforms in euro area
European Central Bank President Mario Draghi said German savers can’t expect high returns for their savings until economic reforms rekindle demand for capital.
Speaking at the annual meeting of the Asian Development Bank in Frankfurt on Monday, Draghi answered persistent critics in Europe’s largest economy who blame ECB policy for depressing returns on savings, arguing that high current account surpluses in Europe were also responsible for the global glut of capital.
“In a world where real returns are low everywhere, there is simply not enough demand for capital elsewhere in the world to absorb that excess saving without declining returns,” he said. “Our largest economy, Germany, has had a surplus above 5 percent of gross domestic product for almost a decade.”
The Frankfurt-based ECB’s current mix of low or negative interest rates plus 80 billion euros ($92 billion) per month in asset purchases is intended to boost euro-area inflation back toward the target of just under two percent. While that goal remains elusive, Draghi has fought off criticism by saying that monetary stimulus is indispensable to supporting growth and thus creating the conditions for higher rates in the future.
“The long-term answer to raising real rates of return must be a structural rebalancing of global saving and investment,” Draghi said on Monday. “Since demographic-related saving is likely to remain high, that has to come through raising demand for capital. This is why structural reforms are so important today. They are key to raising productivity growth and hence making investment more attractive.”
Draghi said ECB policies “will allow inflation to return to our objective and, in time, for policy interest rates to rise back to their long-term levels.” At the same time, he also stressed the importance of strengthening the institutional set up of the currency bloc.
“Question marks over the future of the euro area, and the European Union in general, are contributing to uncertainty for individuals and firms, and that this can hold back consumption and investment,” he said. “There is therefore no doubt in my mind that institutional reform in the European Union and of the euro area has genuine economic benefits. For all those who want to see a return to more normal levels of interest rates, this is an essential part of the solution.”