Draghi expected to fend off Schaeuble criticism

21 April 2016
886 Views

The public debate between the European Central bank chief (ECB) Mario Draghi and the German Finance Minister Wolfgang Schaeuble is expected to overshadow today’s ECB meeting.

German Finance Minister Wolfgang Schaeuble went so far this month as to say Draghi shares the blame for the rise of right-wing populist parties such as the Alternative for Germany.

He also warned that the ECB’s ultra-low rates were creating a “gaping hole” in savers’ finances and pensioners’ plans.

“It is indisputable that the policy of low interest rates is causing extraordinary problems for the banks and the whole financial sector in Germany,” he told the news agency on April 12. “That also applies for retirement provisions.”

Germany has a traditional antipathy towards low interest rates because its citizens have tended towards cautious saving rather than spending and Germany’s economy is still largely export-driven rather than reliant on domestic consumption.

Price stability is also a key part of the psyche of German policymakers with the memory of hyperinflation in Germany’s Weimar Republic in the 1930s making officials wary of low interest rates designed to boost inflation to around the ECB’s target of below 2 per cent. At the last inflation reading in March, the eurozone was again in deflation territory with prices falling 0.1 per cent year-on-year.

With no new measures expected at the ECB’s monetary-policy meeting, Draghi may use his press conference to point to signs that negative rates, free bank loans and a 1.7 trillion-euro ($1.9 trillion) bond-buying programme should be enough to revive euro-area inflation. Price expectations are still weak, but indicators including unemployment and the output gap give him a more convincing case.

The ECB will announce its policy stance at 1:45 pm local time in Frankfurt, with the president speaking to reporters 45 minutes later. Economists in a Bloomberg survey predict the benchmark rate will be held at zero, and the deposit rate at minus 0.4 per cent. Both rates were cut at the last meeting in March and bond purchases were increased by a third to 80 billion euros a month.

German Finance Minister Wolfgang Schaeuble went so far this month as to say Draghi shares the blame for the rise of right-wing populist parties such as the Alternative for Germany.

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