France’s German-Speaking Governor Seeks Berlin Unity on ECB

  • Bank of France’s Villeroy to speak before Bundestag committee
  • German lawmakers want ECB to find way out of low-rate policy

Bank of France Governor Francois Villeroy de Galhau is in Berlin doing what neither of his euro-era predecessors could: trying to reassure Germans in their own language.

At a time when the European Central Bank is under fire on charges from squeezing savers to threatening the future of cash, the Governing Council member spoke to the DIW research institute in the morning and addressed lawmakers in the afternoon. While the initial session was in English, he switched to German in the parliament.

“I am well aware that some recent monetary policy decisions of the Governing Council are hotly debated in Germany,” Villeroy told DIW. “The expression of such criticism reflects, at a minimum, the need to explain our monetary policy decisions better. However, I’d like to argue that our recent monetary policy decisions are very much in line with the principles of stability that German culture incarnates so well.”

The trip to the capital of the region’s largest economy may help mend fences between the ECB and politicians, and encourage them to pursue complementary strategies to lift the 19-nation euro area out of its low-growth funk. While monetary officials are worried that governments aren’t implementing reforms fast enough, increasing the burden on the central bank, public administrations are trying to defend themselves against the rise of populist political parties.

“We had a constructive discussion,” Joachim Poss, lawmaker for the Social Democrats and a member of the European affairs committee of the parliament, said after the closed-door event. “He defended the current monetary policy of the ECB and explained that the ECB has to take the whole euro zone into account and not just one country. He stressed the importance of a policy mix and the need for member states to do their share.”

The depth of the skepticism toward the central bank was on display again on Wednesday, when the chief economist of Deutsche Bank AG, Germany’s largest bank, issued a sharply-worded research note criticizing the ECB’s stimulus policy.

“The ECB has allowed politicians to sit on their hands with regard to growth-enhancing reforms and necessary fiscal consolidation,” David Folkerts-Landau wrote on Wednesday. “Thereby ECB policy is threatening the European project as a whole for the sake of short-term financial stability. The longer policy prevents the necessary catharsis, the more it contributes to the growth of populist or extremist politics.”

Draghi Visit

ECB appearances before other nations’ lawmakers aren’t unprecedented, though they are uncommon. Villeroy de Galhau’s predecessor Christian Noyer didn’t speak at the Bundestag during his decade as governor. Nor did his forerunner Jean-Claude Trichet, who went on to become ECB president. Bundesbank head Jens Weidmann regularly speaks in Paris in fluent French, though he hasn’t addressed the National Assembly.

Current ECB president Mario Draghi, an Italian, appeared in front of a joint session of the Bundestag’s European affairs, budget and finance committees in 2012, where he spoke English. He’s set to meet lawmakers again this year, probably on Sept. 28.

The Frankfurt-based ECB, modeled on the nearby Bundesbank, has long faced tension in its homeland as it repeatedly cuts interest rates and floods the euro area with liquidity to fight the threat of deflation. The latest stage kicked off on Wednesday when the central bank started buying corporate debt.

A chief complaint is that it’s expropriating savers and damaging retirement plans. Finance Minister Wolfgang Schaeuble said in April that the institution’s policies have contributed to the rise of parties such as Alternative for Germany that oppose the single currency.

Villeroy & Boch

“The low interest-rate policy of the ECB is causing problems in Germany,” said Michael Stuebgen, a lawmaker for Chancellor Angela Merkel’s Christian Democratic Union. “We know there is currently no alternative. But we want to explain our problems to the ECB and we want to find a way out.”

Villeroy de Galhau, 57, is in a rare position to sympathize. Born in the French city of Strasbourg near the border between the two nations, his family originates from Germany’s Saarland and is a partner in the Villeroy & Boch china and bathroom furnishing business that is still based there.

“Villeroy de Galhau’s appearance is a very good thing,” said Sylvain Broyer, chief euro-region economist at Natixis in Frankfurt. “The ECB won’t exit its ultra-expansionist policy for a very long time, Germany is entering an electoral campaign and the central bank’s message needs to be heard.”

Since becoming governor last November, Villeroy has been on a mission to push for better economic policy coordination in the euro area. It’s an argument supported by the Group of 20 nations, the International Monetary Fund and Organisation for Economic Cooperation and Development, all of whom have called on governments to make a greater contribution to revive the European economy.

Overcoming Distrust

In recent weeks, Villeroy has traveled to Rome and Madrid to discuss monetary policy and the economy, and will speak in Brussels on Thursday. One of his key proposals, reflecting the ECB’s position, is for a euro-area finance minister.

He repeated that message in Berlin, with the acknowledgment that it’s a hard sell at the moment -- particularly from a French official, given his own nation’s sluggishness in making reforms and its failure to meet European Union fiscal rules.

“The French call for Germany to support coordination, and the German doubt about French reforms, have been and are still well-founded,” he said at the DIW event. “This requires overcoming distrust between countries and bringing together both aspects under the same umbrella, namely a common institution.”

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