A Banker's Ire

ECB Throttling German Savers

breuer source Handelsblatt
Michael Breuer says the ECB is punishing German savers.
  • Why it matters

    Why it matters

    There is growing criticism in Germany that the ECB is trying to transfer money from German savers to southern European economies with its low interest rate policies.

  • Facts

    Facts

    • The ECB has set its base interest rate to zero, as well as launching a massive stimulus program aimed at increasing lending and investment.
    • The German small banking sector says low interest rates eat into profits, while new regulations crush them under red tape.
    • German savings rates are traditionally very high, with individuals relying largely on bank deposits as a way of saving for retirement.
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    Audio

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The head of one of Germany’s largest federations of small savings banks has added to growing German condemnation of the policies of the European Central Bank.

Speaking to Handelsblatt ahead of a national conference of Germany’s approximately 400 local and regional savings banks, he said ongoing ultra-low interest rates could stunt growth and impoverish savers, while undermining the country’s pension system and even its social cohesion.

Michael Breuer, president of Rhenish Sparkasse Group, a cluster of 33 savings banks in the west of the country that includes some of the country’s largest, will play host this weekend to the annual conference of savings bank executives. The local and regional savings banks, many of them part-owned by municipalities and regional governments, form the third pillar of Germany’s decentralized banking system, alongside the network of cooperative banks and the private banking system.

Asked if he was angry at the policies of the ECB and the swathe of new European regulations weighing on smaller banks, Mr. Breuer was unsparing in his criticism of the low-interest rate policies championed by ECB president Mario Draghi. “I will be quite clear. The ECB is neither neutral nor independent. It has a concrete goal in mind, it is trying to stimulate southern European economies.”

Mr. Breuer suggested the savings banks were in prime position to witness the impact of policies in Germany. “The policy is meant to redistribute money at the cost of our customers, the German saver. Ultra-low interest rates hit middle-income people above all,” he said.

“The ECB is neither neutral nor independent. It has a concrete goal in mind: it is trying to stimulate southern European economies.”

Michael Breuer, President, Rhenish Sparkasse Group

Germany’s savings banks network comprises more than 400 savings banks, six regional banks, nine regional building societies and 11 associated insurance companies. Organized at a national level by a national savings bank association, the network holds more deposits than Germany’s two largest private banks — Deutsche Bank and Commerzbank — combined.

In recent weeks several German politicians, particularly from Angela Merkel’s center-right Christian Democratic Union, have criticized Mr. Draghi’s policies. In an unusual move, earlier this month the federal finance minister Wolfgang Schäuble, publicly blamed the bank for the recent electoral success of right-wing populist parties such as Alternative for Germany.

Mr. Breuer, a former Christian Democratic minister in the state government of North-Rhine Westphalia, echoed these criticisms, suggesting ECB policies were undermining the entire structure of pensions and savings in Germany. “The ECB is interfering with individual’s financial planning. Saving is only possible with interest rates of a certain level. Low interest rates prevent the growth of money.”

Last week the ECB voted to keep its base interest rate at 0 percent, while charging banks negative rates on overnight deposits.

Last year saw a number of regional savings banks suggest the payment of government bonuses to savers, to re-incentivize the traditionally high German savings rate in the current financial climate. Mr. Breuer endorsed the idea, suggesting the German government should consider borrowing at the current cheap rates in order to pay savers a premium. “We cannot simply say the government must avoid new debt, if that means we have to deal with an epidemic of poverty among pensioners in 20 years’ time.”

Asked if he would rule out passing on negative interest rates to private customers, Mr. Breuer said the savings banks would do everything to avoid such a step. If it became the norm in the banking industry, the savings banks would be the last to impose “penalty interest rates” on customers, he added. Banks, including some of the larger savings banks, have already quietly imposed negative rates on business customers, with rates of -0.3 or -0.5 percent on balances of over €5 million, or $5.6 million.

Mr. Breuer is paid €590,000 annually to run his federation of savings banks, a figure known to the public thanks to a state transparency law. He defended the high salaries paid to officials of the savings banks, which are partly publicly-owned. Although this was more than most public servants earn, he said, the banks had to compete for qualified staff in the broader financial sector. Salaries were appropriate in comparison with the cooperative and private banking sectors, he said.

Banks Must Pay to Deposit-01 ECB deposit interest rate euro zone

 

Elisabeth Atzler has been a banking correspondent at Handelsblatt since 2012. To contact the author: atzler@handelsblatt.com

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