German Angst Over ECB on Show as Schaeuble, Weidmann Disagree

  • German finance minister sees ``extraordinary problems''
  • Bundesbank head says German concerns are too narrowly focused

Germany’s finance minister renewed his criticism of the European Central Bank as his country’s own monetary chief defended the institution’s independence, in the latest escalation of tensions over low interest rates in the region’s largest economy.

Wolfgang Schaeuble said ECB policy is causing “extraordinary problems” for German banks and pension planning, and could undermine support for a closer European Union. His comments to Reuters were published on Tuesday hours after the Financial Times released an interview with Bundesbank President Jens Weidmann, who said German concerns are too narrowly focused.

As global policy makers head to Washington to discuss how to revive economic growth, a long-standing division between Germany and the ECB appears to be widening. German ire over low rates that are seen as expropriating savers has been fed by repeated expansions of monetary stimulus, as well as suspicions surrounding the debate over the future of the 500-euro ($570) note and helicopter money.

“It is indisputable that the policy of low interest rates is causing extraordinary problems for the banks and the whole financial sector in Germany,” Schaeuble told Reuters. That also applies to retirement provisions and “that is why I always point out that this does not necessarily strengthen citizens’ readiness to trust in European integration,” he said.

Schaeuble Critique

Schaeuble’s remarks come days after an event in which he suggested that ECB President Mario Draghi shares the blame for the rise of populist parties such as the anti-immigration Alternative for Germany.

Weidmann, who sits on the ECB’s decision-making Governing Council, told the FT in an interview held on April 7 and published Tuesday that it’s correct for the central bank to have an expansive policy to reach its inflation goal of just under 2 percent, a level it hasn’t achieved for three years.

“It’s not unusual for politicians to have opinions on monetary policy, but we are independent,” he said. “The debate does not focus enough on the broader macroeconomic consequences of monetary policy. People are not just savers: they’re also employees, taxpayers, and debtors, as such benefiting from the low level of interest rates.”

Washington Talks

Schaeuble and Draghi will probably hold talks in Washington this week, the German finance ministry said on Monday. Group of 20 policy makers will meet from April 14-15, with finance ministers and central-bank governors from 188 countries gathering from April 15-17 for the spring meetings of the International Monetary Fund and World Bank.

The IMF warned of the risk of global stagnation on Tuesday as it cut its economic-growth forecast to 3.2 percent this year from 3.4 percent in January.

Germans have also greeted the suggestion that the ECB might withdraw the 500-euro note with dismay. It’s stoked suspicions in the cash-oriented country that officials want to abolish paper money to cut rates even further.

Separately on Tuesday, the Bundesbank denied a report that it would support a gradual phaseout of the note. The Wall Street Journal had reported that Weidmann is among those who would support ending the printing of new versions of the bill, citing a person familiar with the matter.

Schaeuble played down the idea that the ECB might turn to helicopter money, or the direct central-bank financing of fiscal stimulus. The concept was called “very interesting” by Draghi last month, though he and his colleagues have said they haven’t discussed it as a policy option.

“I don’t have the impression that serious discussions are taking place within the ECB on this,” Schaeuble said.

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