Photographer: Krisztian Bocsi/Bloomberg

Germany Abandons Push for G-20 Monetary Policy Restraint

  • Officials failed to introduce stronger language into document
  • Germany is promoting ‘resilience’ in G-20 presidency

Germany has abandoned a renewed effort to push the Group of 20 to rein in monetary stimulus, according to people familiar with the matter.

German officials failed to convince counterparts that the G-20 should support language backing tighter monetary policy to promote global financial resilience, the people said, asking not to be named because the discussions are private. Germany had drafted it in a document as part of its presidency of the group this year, and will host finance chiefs next month in the spa town of Baden-Baden. 

The country’s monetary policy initiative was thwarted even before a transatlantic spat erupted last week after the White House’s top trade adviser criticized Germany’s alleged currency policy. That episode hints at the challenges for its G-20 presidency in a politically volatile year as U.S. President Donald Trump hits out against global finance and trade rules, the U.K. plans its departure from the European Union, and Germany and France face elections. 

German officials wanted the G-20 to sign up to a paper on the need to enhance the world’s economic resilience, which would encourage central banks to build buffers monetary against future crises, one of the people said.

G-20 Presidency

Germany is promoting the stability of the global economy as a priority of its presidency, with an emphasis on “resilience.” A statement of themes for the Hamburg G-20 summit in July notes that with interest rates at historic lows, “fiscal and monetary policies do not have the necessary scope to deal with possible future crises.”

Instead, the G-20 document tabled by Germany, an annex to the leaders’ final communique, now echoes previous formulations and doesn’t endorse removal of stimulus, another of the people said. That doesn’t exclude reinstating the original language in July.

The draft says central banks should be independent, focus on inflation goals, and that monetary policies should also take into account financial stability when supporting economic activity, the person said.

Central banks have implemented record stimulus in the past decade, though they are now diverging, with the U.S. Federal Reserve tightening policy, while the Bank of Japan and the European Central Bank are still pumping money into their economies.

That hasn’t deterred Germany, which has long pursued a similar agenda on central bank policies at G-20 meetings. Its presidency of the group -- the de-facto steering committee for the world economy -- was a chance to push that. Officials have tried in vain for years to convince counterparts to include language in their statements that would hint at a preference for tighter monetary policy, citing low interest rates as an impediment to growth by hurting savers and bank balance sheets, according to a person involved in past discussions. 

Prospect of Disagreement

That mirrors the experience of Germany’s central bankers, who have often opposed rate cuts and stimulus enacted with the support of most euro-zone policy makers. 

A spokeswoman for the German Finance ministry declined to comment on the drafting process for G-20 talks. The group’s meeting of finance ministers and central bankers in March will prepare the ground for the summit of leaders in July.

“It’s good that enhanced resilience is a theme of this G-20,” Michael Kemmer, the head of Germany’s bank lobby BDB, said last month. “Monetary policy should also be part of it, as we now need measures that look at the longer term rather than at the short term.”

Any differences of view over monetary policy are likely to pale in comparison with the prospect of outright disagreement on currency policies after a Trump administration official said Germany was using a “grossly undervalued” euro to gain an unfair trade advantage. European Central Bank President Mario Draghi rebutted such calls this week, saying that Germany is not a currency manipulator, defending the gains from free trade and warning against a roll-back of post-crisis financial regulation.

— With assistance by Theophilos Argitis

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