High Inflation, Low Rates Are a Threat to Merkel

There's a big threat to Germany's traditional political parties ahead of this year's general election, and it isn't immigration or populism. It's the inflation eating away at Germans' savings as the European Central Bank keeps interest rates near zero.

Germans, from serious economists to tabloid writers, have long decried the ECB's lax monetary policy. With its stated goal of driving price growth closer to 2 percent a year, it only benefits the more profligate nations of southern Europe: They can borrow more at the lower rates, and inflation reduces the real amount of their debt. In the second quarter of 2016, the latest for which Eurostat data are available, Greece, Portugal, France, Belgium and Italy all increased their debt to economic output ratios. It was largely thanks to their efforts that, in that quarter, total euro zone government debt increased by 204 billion euros ($216 billion) year-on-year. Germany, along with the Netherlands, Ireland and Finland, was among those countries that reduced their debt-to-gross domestic product ratio.