by Bernard
Sun Apr 24th, 2016 at 04:28:46 PM EST
This was then.
Spring 2012: the financial crisis that struck four years ago has thrown more people into unemployment and the economy has still not recovered. The ECB is running a tight money policy and the official priority of the Eurozone is to reduce state debt and budget deficits. Greece, Portugal, Spain and Ireland have been subjected to austerity policies, with the understanding that Italy and maybe France may be further down the line.
In France, outgoing president, Nicolas Sarkozy, is running for re-election. It's an uphill battle: unemployment has increased during his term and for those who still have a job, their wages have stagnated or even receded. The economy hasn't recovered to pre-recession levels. Many are calling for the ECB to do more to "support economic growth" in addition to its main mandate to keep inflation in check; Sarkozy eventually joined this choir:
Sarkozy puts role of ECB back on French election agenda -- EUbusiness.com | EU news, business and politics (17 April 2012)
Sarkozy launched the last week of his difficult re-election campaign with a veiled swipe at the independence of the European Central Bank (ECB).
"On the role of the Central Bank in supporting growth, we are also going to open a debate and we will push Europe forward," he told an election rally on Sunday.
"If the Central Bank does not support growth, then we will not have enough growth."
Despite the so-called "Merkozy" alliance, reaction from Berlin was swift:
Germany stresses ECB independence after Sarkozy comments | Reuters (17 April 2012)
Germany on Monday rebuffed calls by French President Nicolas Sarkozy to extend the mandate of the European Central Bank (ECB) to include supporting economic growth, citing the central bank's independence.
"The German position on the ECB and its independent role is known and is also known in Paris and has been unchanged for a long time," Chancellor Angela Merkel's spokesman Steffen Seibert told reporters.
[Frontpaged - Frank Schnittger]
Of course, the CDU government was also worried by the likely election of François Hollande, who, not only wanted the ECB to support growth but also wowed to challenge the fiscal pact:
French election could spell end of Merkozy alliance | World news | The Guardian (Sunday 22 April 2012)
It is here that Hollande is planning to challenge Merkel most fundamentally - on the policies and strategies that have entrenched German fiscal rigour and austerity as the eurozone's answer to the crisis.
That means seeking to reform the role of the European Central Bank and discussing Merkel's punitive fiscal pact, reluctantly agreed by 25 EU leaders in March and now being ratified. Hollande says that a France under a new political majority in June will not ratify the existing pact. Merkel, by contrast, is racing to get the German Bundestag to endorse the pact by next month.
Just before campaigning closed in France on Friday, Hollande threw down another gauntlet to the Germans and the ECB. The Frankfurt central bank, he said, should help fix the euro crisis by lending directly to eurozone governments rather than supplying cheap credit to banks.
When Hollande eventually replaced Sarkozy in May, he pushed forward, along with Mario Monti and others, on extending the ECB role to tackle the debt crisis, with similar reactions:
Euro-Zone States Discuss Plan to Give ESM Unlimited Funding From ECB - SPIEGEL ONLINE (July 31, 2012)
Leading members of the ECB's governing council support the idea, the report said. But the German government and the German central bank, the Bundesbank, have in the past opposed the move because it could fuel inflation, endanger the ECB's independence and breach European Union treaties that forbid the ECB from financing euro-zone member states.
Germany Opposed to Idea
The plan isn't new. France proposed it last year but Germany and other countries shot it down. But German Chancellor Angela Merkel faces increasing European pressure to drop her Nein and make way for a measure that many hope would end the two-year crisis plaguing the continent.
The German Finance Ministry on Tuesday rejected the plan. A spokesman said the ministry saw no need for an ESM banking license. "And we're not holding talks on this issue."
This is now.
Spring 2016: four years later, Hollande has definitely given up challenging the budgetary orthodoxy and has aligned himself, and the rest of the Eurozone, behind Merkel and Schaüble and the no-deficit, balanced budget, supply side principles. The austerity policies have thrown the EZ economy into morass and quasi deflation, the "Confidence Fairy" notwithstanding.
To fend off the threat of a deflationary spiral, the ECB, under Mario Draghi, has launched a strong quantitative easing program, that eventually lead - predictably enough - to lower interest rates, even negative rates in some places. This is good news to those who are borrowing money, but this is not good news to those who are saving money. And the latter are growing increasingly vocal, particularly (but not only) in Germany. Last month, the Handelsblatt made a cover showing Draghi nonchalantly burning a 100€ note with a headline: "Mario Draghi's dangerous game with the German savers money".
Wolfgang Schaüble, ever so mindful of the ECB independence, expressed a strong unease during the G20 summit in Shangai last February.
Central banks near policy limits but back in focus after G20 meeting - The Globe and Mail
"Monetary policy is extremely accommodative to the point that it may even be counterproductive in terms of negative side effects on banks, policies and growth," German Finance Minister Wolfgang Schaeuble said at the G20 meeting.
"Fiscal as well as monetary policies have reached their limits," he said. "If you want the real economy to grow, there are no shortcuts which avoid reforms."
According to Schaüble, it's the QE and low interest rates that are the causes and not the consequences of anemic growth.
A few weeks ago, Schaüble went even further and took the gloves off:
German criticism of ECB gets louder as politicians say savers are losing out | Reuters
A chorus of conservative German politicians have criticized the European Central Bank for its interest rate policy, which they say is hitting the retirement provisions of ordinary Germans, could lead to asset bubbles and even boost the right-wing.
German Finance Minister Wolfgang Schaeuble partly blamed the ECB's policy for the success of the right-wing Alternative for Germany (AfD) in recent regional elections, which saw it take up to a quarter of votes in a setback to Schaeuble's conservatives, according to the Wall Street Journal.
The newspaper quoted Schaeuble as saying he had told ECB President Mario Draghi: "Be very proud: You can attribute 50 percent of the results of a party that seems to be new and successful in Germany to the design of this [monetary] policy." A finance ministry spokesman declined to confirm the comments.
After strangling growth, easy money is now fueling far right parties (the kitchen sink couldn't be far behind). In Bavaria, CSU politicians are even more vocal:
Conflict Grows Between Germany and the ECB - SPIEGEL ONLINE
The most pointed attacks have come from the Bavarian CSU. With the refugee crisis having faded into the background, party head Horst Seehofer has made his opposition to Draghi his next major issue. Bavarian Finance Minister Markus Söder has already set the tone: "The zero-interest policy is an attack on the assets of millions of Germans, who have placed their money in savings accounts and in life insurance policies," he says.
The German government is even reportedly considering taking the ECB to court. Again, Der Spiegel:
Conflict Grows Between Germany and the ECB - SPIEGEL ONLINE
Such a legal battle between the government and a central bank would be a first in German history. It could lead to a constitutional crisis of unprecedented severity or to currency turbulence -- which is why it is extremely improbable that the two sides would allow the conflict to escalate to such a degree.
But the very fact that senior officials in the German Finance Ministry are considering their legal options makes it clear just how great the frustration with Draghi has become. The ECB head's ever more imaginative ideas for increasing the money supply, say Finance Ministry officials, indicate that he is only concerned about the psyche of the international financial markets and not about average German savers.
Mario Draghi didn't take it too kindly and replied that the ECB isn't into the sole business of preserving German savers' assets:
Mario Draghi takes on his German critics | The Economist
The politicians' complaints seem to have backfired, provoking indignation on the ECB's governing council. Mr Draghi proudly reported that his colleagues had unanimously endorsed not only current monetary policies but also the importance of preserving the central bank's independence. "We obey the law, not politicians," Mr Draghi asserted. The German economy may not need monetary stimulus as much as weaker peripheral countries. But Mr Draghi remarked that the ECB's mandate is to pursue price stability for the whole of the euro zone, not just Germany.
Worse, Mr Dragi continued, any criticism was counterproductive. By undermining the ECB's credibility, critics might make its policies less effective. In the end, that would lead to more stimulus--the opposite of what Mr Schäuble wants. Mr Draghi said he welcomed a "polite, lively debate", but showed no sign of shifting his position.
What to make of all of this? Do as I say, not as I do? Well, that's politicians to you and Germany is no exception.
By blaming everything but the cold weather onto the ECB loose money, Schaüble et fellow politicians are drawing attention away from the cause: the ECB is using the loose money and low interest rates methods because the Eurozone states, led by the German government, refuse to use the budgetary tools. Without enough budget for maintenance and upgrades, German infrastructures are aging, not to mention airport construction projects...
And there is also the question of the fragility of the German banking and financial system: Deusche Bank crisis for instance.
As Romaric Godin in La Tribune wites: four years ago, German officials were chiding their French counterparts for criticizing the ECB instead of reforming themselves; today, the compliment could be returned.
