Reuters — Mario Draghi is faced some of his prominent German opponents as lawmakers in Berlin got a rare chance to press him for an eventual end to record-low interest rates in the euro area. German MPs had 90 minutes to quiz spar with Draghi in closed session on Wednesday, including over his insistence that Germany’s budget surplus means it has fiscal leeway to boost demand. The meeting gave German lawmakers a chance to question the ECB head about the state of Europe’s banks, including the troubles at Deutsche Bank AG, Germany’s biggest lender and Europe’s largest investment bank.
Many in financially prudent Germany say sub-zero rates upset financial stability, consume household savings, destabilise banks and reward financial mismanagement by euro zone governments.
“What was also discussed is that the low interest rate policy works like a hidden rescue package although the German Bundestag never gave its approval for this,” Gunther Krichbaum, the head of Bundestag’s European affairs committee, said.
“On balance, savers, employees, entrepreneurs, pensioners and taxpayers across the euro area, including in Germany, are better off because of our actions — today and tomorrow,” Draghi told the Bundestag’s European Affairs committee.
On balance they probably are – except in marginalised Greece which is excluded from the QE programme pays higher rates for borrowing and whose pensioners and taxpayers are much worse off as a result of the policies Europe and the ECB have imposed on Athens.
The ECB’s calls for more government spending annoy Germany, where balancing the budget is a national obsession and a cornerstone of finance minister Wolfgang Schaeuble’s economic strategy.
The heart of the problem is that German households prefer uncomplicated savings products that now yield nothing, eating into the retirement prospects of millions and endangering hundreds if not thousands of small savings banks.
Some political analysts also argue that much of the criticism may be a way of deflecting attention from Merkel’s increasingly unpopular refugee policy and the poor showing of her Christian Democrats (CDU) in regional elections.
Draghi rebuffed lawmakers’ criticism, arguing that the German government alone had saved 28 billion euros last year through lower than expected interest payments.
“In fact, evidence shows that between 2008 and 2015 interest payments by households in Germany, as a percentage of gross disposable income, fell more sharply than interest earnings,” Draghi said.
“Of course, low interest rates for a long period might carry the risk of overvaluation in asset markets as a result of the search for yield. But at the moment we are not seeing any overheating in the euro area or the German economy as a whole.”
With the euro zone economy responding to stimulus more slowly than expected, the ECB is now looking at fresh options. To German ire, markets are pricing in a six-month extension to its 80 billion euros per month of asset purchases.
With a national election just a year away, Merkel is facing growing discontent, even from her coalition ally, raising doubts over whether she can lead her conservatives to a fourth election victory in a row.
The ECB says Germany relies too much on exports, neglecting its internal market and running up huge trade surpluses without recognising that its economic good fortune may not last. More spending at home would balance the economy and trickle down to the rest of the euro zone, helping the entire bloc, it argues.
Politico.com assesses that at the end of the meeting, no one left the room believing anything would change, sonethiung that Draghi himself acknowledged, saying “I cherish occasions for debate to listen to people who have different views. It forces us to think more about our views, although not changing them, of course.”
