Draghi, Ger­many clash over ECB's stim­u­lus

The Pak Banker - - COMPANIES/BOSS -

A sim­mer­ing war be­tween ECB chief Mario Draghi and Ger­many erupted into the open af­ter the bank un­leashed an un­prece­dented stock of am­mu­ni­tion to light a fire un­der chron­i­cally weak in­fla­tion.

The Ital­ian cen­tral banker, who heads the Euro­pean Cen­tral Bank, was por­trayed on the front­page of Ger­many's in­flu­en­tial busi­ness daily Han­dels­blatt with a cigar on his lips and hold­ing a 100-euro bill that was go­ing up in flames. Bild daily re­ferred to Thurs­day's an­nounce­ment as a "shock", while the fed­er­a­tion of ex­porters called the de­ci­sion "dis­as­trous" and "a rob­bery of savers". On Thurs­day, the ECB slashed al­ready record low in­ter­est rates even deeper, said it would pump mas­sive new sums into the bank­ing sys­tem and, for the first time, would start buy­ing cor­po­rate bonds. The aim is to get credit flow­ing to house­holds and com­pa­nies, thereby in­duc­ing them to spend and in­vest. But it also means that putting money in a bank will no longer pay.

For a na­tion of savers like Ger­many, that is noth­ing short of a cap­i­tal sin.

Han­dels­blatt railed against "Mario Draghi's dan­ger­ous game with Ger­man savers' money" in a com­men­tary that gave the im­pres­sion that the pol­icy was meant to hurt Ger­mans and Ger­mans alone. It felt all the more per­son­ally tar­geted be­cause Ger­mans had it "drummed in their heads for years that they should save for their re­tire­ments," Carsten Klude, econ­o­mist at the bank M.M. War­burg, told AFP. In a coun­try where the pop­u­la­tion is fast age­ing, and where the pen­sion sys­tem is more vul­ner­a­ble to shocks, pub­lic in­sti­tu­tions have tra­di­tion­ally of­fered the peo­ple strong in­cen­tives -- through tax re­bates, for in­stance -- to squir­rel money away. Ger­man bank ac­counts also of­ten of­fer com­pet­i­tive in­ter­ests. "But now peo­ple see that sav­ing does not pay. And they feel cheated," said Klude. "The Ger­man po­si­tion is un­der­stand­able," said Syl­vain Broyer, econ­o­mist at Natixis. Broyer es­ti­mates that the coun­try needs an in­ter­est rate at around 2.0 per­cent rather than zero in or­der to main­tain macro-eco­nomic sta­bil­ity. He noted that the cheap money pol­icy has driven Ger­mans to in­vest in prop­erty, thereby send­ing prices sharply up in re­cent years.

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