Germany V Draghi

ECB attacks at fever pitch

Don't tell me what to do. Wolfgang Schäuble (l) and Mario Draghi.
  • Why it matters

    Why it matters

    Critics blame ECB chief Mario Draghi’s loose monetary policies for sabotaging economic growth in the 19-nation euro zone and sparking the rise of the far-right Alternative for Germany party. ECB backers say critics should look in the mirror.

  • Facts


    • German Finance Minister Wolfgang Schäuble on Friday blasted the ECB’s monetary policies and even blamed Mr. Draghi for strengthening populist party AfD.
    • German economists and Social Democrats fired back, calling the conservative criticism of the euro-zone’s central bank maligned and out of control.
    • Mr. Schäuble and Mr. Draghi come face to face on Thursday, when both attend International Monetary Fund meetings in Washington.
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Mario Draghi has never had a cozy relationship with the German public. Hailed for a time as a hero by financial markets, Germany has been ever critical of the European Central Bank boss – but never as much as right now.

His transgressions, according to critics, range from sabotaging economic growth in the 19-nation euro zone with overly loose monetary policies to harming savers, pensioners, insurers and banks across Germany by reducing interest rates to record lows.

In the one corner is Germany’s finance minister, Wolfgang Schäuble, a long-time standard bearer of the conservative wing of the center-right Christian Democratic Union and Chancellor Angela Merkel’s chief rival within the party over the past decade.

It is not often that Mr. Schäuble wades into monetary policy. Central banks are meant to be independent after all, free to make the tough choices to safeguard the economy without political interference.

But in a scathing attack on Friday at an event near Frankfurt, Mr. Schäuble apparently could no longer hold his tongue. He blasted the ECB’s monetary policies and even blamed Mr. Draghi for sparking the rise of far-right political party Alternative for Germany.

The tirade, which was followed by other conservative politicians over the weekend, seemed to mark a new low for Germany’s policymakers in their relations with the Frankfurt-based ECB, and even sparked some German policymakers to rally to Mr. Draghi’s cause.

“The tone and the direct attack on the ECB by a senior, or better by one of the two most prominent members of the German government, is unprecedented,” Carsten Brzeski, the Frankfurt-based chief economist of the Dutch-German bank ING-Diba, said Tuesday.

The ECB president does have his backers after all, even in jaded Germany, where criticism of the central banker has reached a deafening crescendo.

“We desperately need a more fact-based debate on ECB monetary policy in Germany.”

Marcel Fratzscher, President, German Institute for Economic Research

According to sources who attended the Frankfurt event, Mr. Schäuble said the ECB president could be “proud” because his monetary policies were responsible for half of the populist AfD party’s recent election results.

The party, which formed in 2013 out of the anti-euro movement, succeeded in gaining seats in three state parliaments in elections last month – albeit mostly by catering to the country’s fears over immigration and Chancellor Angela Merkel’s open-door refugee policy.

Mr. Brzeski of ING-Diba warned that the finance minister’s comments conflicted with “at least the sprit of” the European Union’s treaties, which protect the central bank from undue political interference.

Mr. Schäuble also sought to slightly backpeddle on his comments this week. A spokesman on Monday said the debate over monetary policy was “a legitimate discussion that must be had,” but added it should be mistaken with attempts to directly influence ECB monetary policy.

The finance minister is far from the only German politician growing impatient with the central bank.

Several Christian Democrats have gone as far as calling on the German government to intervene. Over the weekend, two conservative parliamentarians – deputy parliamentary leader Michael Fuchs and finance expert Ralph Brinkhaus – told German media it was time to put more pressure on the ECB to justify its actions.

Such actions include the central bank’s moves last month, when it dropped its base interest rate to zero, from 0.05 percent, and lifted negative interest rates for overnight bank deposits at the bank to minus 0.4 percent from minus 0.3 percent.

Bankers in Germany complain that the ECB may actually be restricting rather than encouraging lending through its recent policies, by weighing down on the profitability of financial firms. Despite easy money, Germany’s credit-market slump continues, according to a new report from development bank KfW.

Alexander Dobrindt, a member the Christian Social Union, the Bavarian sister party of the Christian Democrats, on Sunday told German newspaper Bild that vanishing interest “creates a gaping hole in people’s retirement planning.”

078 ECB-01 Mario Draghi WTB 2014 resume


Some German economists and members of Germany’s center-left Social Democratic Party, Chancellor Merkel’s junior coalition partner, fired back, calling the conservative criticism of Europe’s central bank maligned and out of control.

“The one-sided debate of the ECB in Germany damages the reputation of this institution, which was the only one that proved itself consistently capable of action during the crisis,” Carsten Schneider, the Social Democrats’ deputy parliamentary leader and finance expert, told Handelsblatt. He argued conservatives’ statements were driven by fear of further loosing ground to the AfD in opinion polls.

Germany’s finance minister and politicians as a whole are obligated to protect the independence of the ECB’s monetary policies, Mr. Schneider added. His fellow Social Democrat Johannes Kahrs, a member of German parliament’s budget committee, said conservative criticism didn’t strike quite the right tone.

“One can criticize on substance, but one must be careful,” Mr. Kahrs cautioned, “in the form” of such criticism. He added that Mr. Schäuble has actually profited directly from the central bank’s low interest rates.

“The finance minister isn’t renouncing the many billions of euros that he is saving in the budget because of low interest rates,” he said. Germany only has a balanced budget “because of ECB policy,” Mr. Kahrs claimed.

Some German economists also fired back against the conservative criticism, calling for restraint.

“We desperately need a more fact-based debate on ECB monetary policy in Germany,” said Marcel Fratzscher, president of the German Institute for Economic Research.

Mr. Fratzscher was among seven prominent economists to defend the ECB over the weekend in a joint article: “Criticism of Draghi is not a solution,” they wrote in the Frankfurter Allgemeine Zeitung on Sunday.

It is not the central bank, but rather Europe’s governments, including Germany’s, that are responsible for Europe’s crises, Mr. Fratzscher said. The economist, who previously led of the ECB’s international policy analysis, said governments’ own actions were insufficient or off target.

Gustav Horn, research director at the Macroeconomic Policy Institute, echoed that sentiment. “It would certainly be better it fiscal policies would become active too,” he said, adding: “It appears as if Mr. Schäuble wants to destroy the euro zone.”

One institution has been conspicuously absent from the debate over the last few days: Germany’s central bank, the Bundesbank.

The Bundesbank, long one of the ECB’s toughest critics, has declined to comment on Mr. Schäuble’s criticism. But financial sector sources say the German central bank is worried that criticism of ECB monetary policy in Germany is spinning out of control and could threaten the independence of Europe’s central bank.

Jens Weidmann, head of the Bundesbank, has been a vocal critic of the ECB’s bond-buying program, but he’s also a stern believer that central banks should be independent.

A member of the European Central Bank’s decision-making governing council, Mr. Weidmann last month defended the independence of central banks. But he also added: “A federal government should speak out.” In an interview with the Financial Times on Thursday, before Mr. Schäuble’s comments, he reversed those comments, saying: “It is not unusual for politicians to have opinions on monetary policy, but we are independent.”

That fine line is partly because Mr. Weidmann worries the central bank’s policies themselves are eroding the ECB’s independence by wading too close to fiscal policy. In the debate the ECB’s “quantitative easing” purchases of euro-zone debt, the Bundesbank chief has called repeatedly for a narrow interpretation of the ECB’s mandate in order to protect its independence.

Mr. Schäuble and Mr. Draghi will come face to face on Thursday, when both will attend International Monetary Fund’s semi-annual meetings in Washington.

Perhaps there will be a certain amount of detente: The two plan to meet on the sidelines to discuss, among other topics, how to counter criticism of the ECB in Germany, according to financial sector sources.


Jan Mallien covers monetary policy for Handelsblatt out of Frankfurt; Jan Hildebrand is the deputy Berlin bureau chief. Christopher Cermak of Handelsblatt Global Edition also contributed to this story. To contact the authors:

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