ECB boosting Euroscepticism in Germany?

The ECB's negative interest rate policy threatens to cause a real estate bubble in Sweden, István Székely, the European Commission's Director of Economic and Financial Affairs, has repeatedly warned. But the government and the people have remained passive, the liberal daily Upsala Nya Tidning complains:

“Why is no one doing what must be done? One clue is that Ireland's government was recently punished by voters despite the country having the highest growth rate in the EU. Swedish politicians, too, would rather bear responsibility for state finances than for private households, which are being called on to spend money. ... The majority of the population is content with the current situation. They have jobs and property whose value is continually rising. ... The government and the opposition must agree on a reform of the housing market. If they can't, or if we voters back more populist alternatives, the next generation will hold us responsible.”

The ECB's policy of reducing interest rates serves arbitrary and opaque goals, economist Rūta Vainienė criticises on the online portal of the public broadcaster LRT:

“With the free money the ECB wants to stimulate inflation, which has failed to climb to the targeted two percent. But no one can tell us why the ECB wants inflation in the Eurozone to stay at two percent, and not one and a half, or three, or even zero. ... Inflation is the God that all governments worship. The ECB's vice president openly equates it with economic growth. But inflation is not the same as economic growth. It isn't even a generator of economic growth. It's a cheap method of satisfying insatiable governments. The inflation frenzy is never-ending and protected by powerful institutional structures, which are themselves supported by interest groups.”

Experts are discussing what instruments the ECB still has for stimulating the economy. After the "helicopter money" debate there is now talk of waiving repayments on government bonds. The liberal-conservative daily Die Presse sees this as a fatal move:

“[The ECB] could decide not to make states repay these bonds, giving them a little more leeway for debt. This would be complex from a legal and bookkeeping point of view, but not impossible, they say. However such a carte blanche for making more debt at the expense of necessary reforms would without doubt cause a breach in the dam. And the ECB would be unable to control the consequences. Then we can really forget the currency and all the financial assets accumulated in it. Let's hope that this system-destroying step isn't taken. The fact that it is even being discussed testifies to a major loss of faith.”

It's a good thing the ECB chief has pushed through his unconventional approach against the procrastinators at the central bank, the liberal business daily Financial Times writes jubilantly on the reduction of the Eurozone interest rate to zero percent:

“The ECB has correctly concluded that a booster is needed, that the banking sector is weak and that it needs to concentrate its energy on stimulating loans and investment in the real economy. … This is not the first time since Draghi took over that the ECB has entered unknown territory with an unconventional monetary policy to combat persistently low inflation and slow growth in the Eurozone. Once again Draghi has got his way against the German-led opposition. Now it's time to let his bold approach take effect.”

The additional easing in the ECB's monetary policy will only exacerbate the Eurozone's problems, the centre-right daily Neue Zürcher Zeitung believes:

“All this new money hardly stands a chance of reaching the real economy. Instead it will only encourage bubbles on the financial markets. The most important mechanism for the transfer of monetary impulses, bank lending, is visibly being blocked by negative interest rates. The banks can hardly pass on the negative rates to savers, because otherwise the latter would withdraw their money and stash it 'under the mattress'. Nevertheless, in order to pass on the higher interest costs to their customers and counter their sinking profit margins, some banks are simply raising their interest rates on loans, for example in the mortgage sector. In these cases the negative interest rates meant to stimulate loans will instead lead to a tightening of the lending policy. The ECB's overdose of medication is at times not only ineffective, but even counterproductive.”

This is really the last time Draghi will dare to use the quantitative easing method, the liberal business paper L'Echo predicts:

“Some limits must not be transgressed. Defenders of a stringent monetary policy, the Germans will no doubt make sure to remind the Italian banker of that. Already, Draghi seems to have settled the question of negative interest rates. This lowering of the ECB's deposit rate to minus 0.4 percent seems to be the last. There can be no question of pushing the rates any lower. Because that would run the risk not only of destabilising the banks, but above all of provoking knee-jerk reactions among savers if the rates on their savings books turn negative. Opinion polls show that in that case savers would withdraw their savings en masse. Not to spend it, but to hide it under their mattresses. ... Draghi seems to have cottoned on to that.”

We shouldn't expect an end to the economic crisis in Europe any time soon, the liberal daily Savon Sanomat writes commenting on the package of measures presented by ECB chief Mario Draghi:

“The European Central Bank has surprised the markets by resorting to all the economic stimulus instruments at its disposal simultaneously. ... But even if one considers these steps for jump-starting the economy to be right, appropriate and necessary, they also show that, like others, the ECB sees the growth Europe was beginning to experience slowing down and the economic outlook darkening. Inflation is also too low, and this can't simply be put down to cheap oil. These measures are a clear sign that the state of emergency the crisis has triggered at the ECB will continue for a long time to come.”

In view of the sluggish global economy the liberal daily Dagens Nyheter expects resolute action from the ECB:

“The big mistake the euro countries made was to react to the economic slowdown too late and too cautiously. The ECB only started to lower interest rates in a bid to stimulate investment and consumption long after Britain and the US. ... Unemployment is still too high, and growth figures are nothing to get excited about. Inflation is still negative. The ECB's key interest rate lies at minus 0.3 percent. More can be done to stimulate the economy. Alarmists warn of a currency war, but interest rate policy is not a zero-sum game. On the contrary - everyone will benefit if Europe can recover and deflation is countered.”

Halting the bond-buying programme now because it hasn't produced the desired impact on the financial markets and in the real economy would be a dangerous move, the centre-left daily Tages-Anzeiger comments:

“The mere suspicion that the ECB might pull the brakes on its quantitative easing recently caused the euro to appreciate and the interest rates on the capital market to go up - to the detriment of the Eurozone's real economy. … It is difficult to see how Mario Draghi can put together a package that both satisfies the markets and the real economy and sends the message of confidence without which the fears regarding the stability of the banking sector will spread uncontrollably. Such a task with all its complexities, contradictions and restrictions is probably even beyond 'Super Mario's' abilities.”

Since the ECB has failed to achieve the goal of two-percent inflation it should introduce a radical new policy, columnist Wolfgang Münchau writes in the liberal business paper Financial Times:

“A helicopter drop means that the ECB would print and distribute money to citizens directly. If it were to distribute, say, €3,000bn or about €10,000 per citizen over five years, that would take care of the inflation problem nicely. It would provide an immediate demand boost, and drive up investment as suppliers expanded their capacity to meet this extra demand. The policy would bypass governments and the financial sector. The financial markets would hate it. There is nothing in it for them. But who cares?”

When the ECB Governing Council convenes next Thursday it must finally take steps to stop deflation in Europe, the centre-left daily Irish Times demands:

“The ECB’s efforts to raise bank lending, stimulate growth and increase inflation have met with limited success and diminished its credibility. ...The ECB’s mandate requires it to achieve price stability which involves a target inflation rate of under 2 per cent. This it has consistently failed to do; as last month’s negative inflation rate confirms. Deflation, once established in an economy, becomes hard to reverse. Consumers defer purchases to benefit from falling prices and companies, faced with weak demand, delay investment and reduce their workforce. ECB president Mario Draghi promised in 2012 to do whatever it takes to save the euro. He needs now to stabilise prices and defeat deflation.”

Inflation in the Eurozone has slipped into the negative numbers despite the billions the ECB has pumped into the financial system. The ECB's initiative won't be enough to stop this trend, the liberal daily Público stresses:

“At first glance this may seem like good news for consumers, who see their buying power increase. … But the negative inflation rate is a poisoned gift: it can lead to consumer decisions and investments being postponed. Expectations that the ECB will do more are rising. But Mario Draghi has already warned that the central bank can't do everything on its own - the governments must also take measures to create jobs and boost growth. Therefore additional political measures of the kind the Juncker plan foresees are welcome.”