This week in Frankfurt, the scene repeated itself again. An emotionless Mario Draghi, the president of the European Central Bank, uttered nearly the same words residents of the 19-nation euro zone have been hearing for years.
Interest rates in the euro zone would remain “at their current levels or even at lower levels” for the foreseeable future. Under Mr. Draghi’s leadership, on Thursday, the bank once again lowered its base rate to zero, from 0.05 percent.
It’s taken almost eight years, but the bill for the world’s 2008 global financial crisis is finally coming due to taxpayers in the euro zone and especially in risk-averse Germany. The ECB’s cheap-money rescue has kept alive the euro, but the cure has been toxic for a nation of savers trapped in zero-interest hell.
Money has never been so cheap in the euro zone, and the ECB is even charging banks negative interest – the penalty was raised to -0.4 percent Thursday from -0.3 percent – to park their money overnight at the central bank in Frankfurt.
The ECB also doubled down again this week on its massive “quantitative easing” purchases of euro-zone debt, another drastic measure to keep the euro patient from flat-lining. This week, the ECB upped its monthly purchases of euro-zone debt to €80 billion ($86 billion) from €60 billion, and expanded its buying activities to include corporate bonds.
Yet aside from Germany, Europe’s largest economy and the economic motor of the currency zone, many economies in the zone are barely growing. Banks might be taking advantage of low ECB rates to cut their own borrowing costs, thank you very much, but they’re not lending out the rest.
Where the ECB’s policies are really being felt are in the 20 million-plus homes and apartments spread across Germany, where befuddled savers are confronting a world out of balance, where saving money is suddenly no longer a German virtue, but a fool’s game for elderly Omas and Opas without a clue.
The low-interest escape from a currency meltdown has decimated German savers’ tried-and-true forms of low-risk investment.
Amid ongoing negative interest rates, almost 80 percent of German government bonds are now bearing negative interest, a total volume of €880 billion, according to data from Bloomberg.
Across the euro zone, there are €3.3 trillion worth of bonds with negative yields. In Germany, savers have packed €2 trillion into time deposits, current and savings, almost a third of all savings deposits in the euro zone.
But most people are earning little if any interest on this money.
Mr. Draghi’s lax monetary policy is a frontal attack on German savers, even if it was never intended to be.
German fund manager Union Investment estimates German households will lose €224 billion in interest over the next five years. And even this bleak outlook is based on the assumption that interest rates will be only 2 percentage points below the long-term average, which is very optimistic.
Low interest rates have also pushed up the price of pensions in recent years.
Olaf Stotz, a professor of asset management at the Frankfurt School of Finance, calculates that a 35-year-old man on an average income with a life expectancy of 79 years would have had to put aside €168 a month in 2007 to maintain his standard of living in retirement.
In 2015, he would have needed to put aside more than twice as much – €360 per month. That is equivalent to an annual increase in costs of 13.5 percent since 2008, which Mr. Stotz describes as “nothing other than inflation.”
While the ECB’s lax monetary policies are exasperating savers, they are good news for borrowers, particularly for countries with high levels of debt.
Germany’s DZ Bank calculates that the burden on Italy’s national budget was reduced by €53 billion between 2012 and 2015 thanks to the so-called Draghi effect. In contrast, Germany’s finance minister, Wolfgang Schäuble, has saved only €9.5 billion in interest payments since 2012.
One of Germany’s leading conservative economists and a persistent critic of Mr. Draghi and the ECB’s low-interest strategy is Hans-Werner Sinn, the head of Munich’s Ifo Institute for Economic Research.
Mr. Sinn has called Mr. Draghi’s strategy “the biggest redistribution of wealth in Europe since the post-war era.”
Wealth is being redistributed, Mr. Sinn has argued, from creditors to debtors, from financially strong to financially weak companies, and from rich to poor economies, without any parliamentary vote.