A
new bond-buying plan, expected to be adopted by the European Central
Bank (ECB) this Thursday (22 January), is meant to boost the eurozone’s
economy by motivating banks to shed their bonds and issue more credit
for the economy.
But
much criticism is coming from Germany, where experts argue the new
measure is likely to ruin the eurozone’s chances of recovery from the
debt crisis.
Pressure off Italy and France...
If
the new plan is implemented, it would take the pressure off Italy and
France to carry out reforms and practice austerity amid the ongoing debt
crisis, warns economic analyst Lars Feld, who is on the German
government’s Council of Experts for economic policy.
“Without reforms, Italy and France will continue to struggle along, which has negative effects on our exports,” Feld told Bild. The analyst also said extending expansionary monetary policy will only put a renewed burden on those sticking to austerity.
Observers
already assume the ECB will approve a billion-euro bond-buying
programme for the eurozone, similar to the strategy used by the United
States Federal Reserve. Hopes are high that the move will boost the
economy and prevent large-scale deflationary drops in prices, which
would lead to lower salaries and dwindling investments.
Last
week, German Chancellor Angela Merkel and Federal Finance Minister
Wolfgang Schäuble met with ECB chief Mario Draghi in Berlin.
Various media sources reported that Draghi presented his bond-buying programme during the meeting, with Der Spiegel saying he had hoped to make the measure attractive to the Germans by taking this initiative.
German
government spokesman Steffen Seibert only confirmed on Monday (19
January) that the meeting took place, “just as there regularly are
confidential and informal meetings between them.” But he said he could
not make any comment on the content of the meeting.
“You
know that our position, represented internally and outside, is that the
European Central Bank shall reach its monetary policy decisions
independently,” Seibert said.
Low exchange rate
Martin Wansleben, CEO of the German Chamber of Commerce and Industry (DIHK) is concerned over an impending flood of money.
“The
markets have already reacted,” Wansleben told Reuters news agency. “The
low euro exchange rate is also a reaction to the ECB’s planned
bond-buying scheme.”
This
facilitates exports, for Germany and above all for crisis countries,
which produce more price-sensitive bulk goods, the DIHK chief pointed
out. But on the other hand, “the low exchange rate also comes at a
price: sectors that require many materials and preparations abroad will
suffer,” Wansleben warned.
There
is also a big threat that other countries will react to the euro’s
weakness, he continued. “The United States may now decide to postpone
its increase in interest rates, for example, so as not to lose
competitiveness compared to Europe. If this occurs, there is a risk of a
spiral of loose money, at the end of which everyone will lose out.”
German
banks are strongly opposed to the measure. “The ECB is prematurely
firing its last bullets. The instrument of bond-buying should be
reserved for economic emergency conditions,” the Deutscher
Kreditwirtschaft (DK), a group of numerous German bank associations,
said in a statement on Tuesday (20 January).
At
the headquarters of the German stock exchange operator Deutsche Börse
on Monday (19 January), the Chancellor said she is practicing the
necessary restraint opposite the ECB, which is an independent
institution.
Merkel: ECB move no excuse to postpone reforms
But
at the same, Merkel said any move by the ECB to buy government bonds
with new money should not be used as an excuse to put such reforms on
the back burner. Such reforms are vital to improving competitiveness,
she explained.
"It
must be avoided that any action taken by the ECB in any respect
whatsoever could result in the impression that what needs to be done in
the fiscal and competitive spheres could be pushed into the background,"
the centre-right Chancellor commented. One cannot replace the other,
she said. Merkel indicated her responsibility for the political side,
emphasising that pressures to improve competitiveness in Europe must
remain intact.
German
Finance Minister Schäuble, on the other hand, is demonstratively taking
a backseat. “The monetary policy decisions are made by the ECB,” the
centre-right politician said on Tuesday in New Delhi. Structural reforms
and a sustainable financial policy are indispensable in euro area
countries, he emphasised.
Schäuble also made it clear that he does not see a threat of deflation in Germany and Europe.
In
December, living costs in the eurozone decreased for the first time in
more than five years, by 0.2%. Many analysts are concerned that falling
prices and dwindling investments could result. But in Germany,
consumption is strong, a condition Schäuble said works against
deflation.