"ECB is completely out of line with your mandate" - professors rant against Draghi
From: Frank Wiebe, Ingo Narat
Source: https://app.handelsblatt.com/finanzen/polemische-debatte-ezb-verstoesst-vollkommen-offensichtlich-gegen-ihr-mandat-professoren-wettern-gegen-draghi/25174660.html
At the "Monetary Policy Forum" in Frankfurt, economists discussed the course of the ECB on Thursday - so bitter that the landlord had to intervene.
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Mario Draghi - The newly retired ECB President is unpopular in Germany. Image: Tim Wegner / laif
Frankfurt - It was a very special conference. The DVFA, the Association of German Financial Analysts, held a "Monetary Policy Forum" in Frankfurt on Thursday, but was mainly invited by critics and opponents of the European Central Bank (ECB). In the morning the discussion degenerated temporarily so that the economics Volker Wieland had to intervene as host of the event in the Frankfurt University.
In the afternoon, the tone became much more objective. Ulrich Bindseil also had the opportunity to speak with a prominent department head of the ECB and defend the monetary policy of his institution.
But the event, which has at least partly gotten out of hand, by the renowned DVFA, shows how much the ECB's policy is now polarizing. Another sign of how difficult it will be for ECB head Christine Lagarde to reconcile monetary policy, both inside and outside the central bank.
The invited economists were in agreement for long stretches. From their point of view, the ECB, with its loose monetary policy, produces "zombies", ie half-dead companies that would not be able to survive at higher interest rates. Or, as Ludger Schuknecht of the OECD put it, the "Schumpeterian process" is questioned in this way.
In the afternoon, the tone became much more objective. Ulrich Bindseil also had the opportunity to speak with a prominent department head of the ECB and defend the monetary policy of his institution.
But the event, which has at least partly gotten out of hand, by the renowned DVFA, shows how much the ECB's policy is now polarizing. Another sign of how difficult it will be for ECB head Christine Lagarde to reconcile monetary policy, both inside and outside the central bank.
The invited economists were in agreement for long stretches. From their point of view, the ECB, with its loose monetary policy, produces "zombies", ie half-dead companies that would not be able to survive at higher interest rates. Or, as Ludger Schuknecht of the OECD put it, the "Schumpeterian process" is questioned in this way.
The economist Joseph Schumpeter had spoken of the "creative destruction" in capitalism. In this view, the ECB is hampering the selection process and is thus responsible for the weak productivity. "The ECB is an obstacle to development, I believe that is also empirically proven," warned the Munich Professor Bernd Rudolf.
Their efforts to raise low inflation are exaggerated and jeopardize financial stability. And again and again came the hint that in reality monetary policy was only for the interests of heavily indebted euro states. In addition, there were frequent visions of bubbles in the markets and future economic collapse.
Their efforts to raise low inflation are exaggerated and jeopardize financial stability. And again and again came the hint that in reality monetary policy was only for the interests of heavily indebted euro states. In addition, there were frequent visions of bubbles in the markets and future economic collapse.
Against a point target in inflation
Jörg Krämer, chief economist at Commerzbank, argued that the ECB could hardly influence inflation anyway because it was kept low by externalities such as globalization. He proposed instead of a "point target" of just under two percent in inflation, a margin between 1.25 and 2.25 percent. "It's a fairytale that low inflation hurts," he said.
He referred to a study by the Bank for International Settlements (BIS), according to which in the past even periods of slight deflation, ie falling prices, would not have caused any major problems. In his opinion, in addition to stable prices, the ECB should also keep an eye on the stability of the financial system, he spoke of "comprehensive stabilization".
Central bankers like to point out that financial supervisors are responsible for the financial stability. Krämer is convinced that these authorities are permanently overtaxed to fight against an expansionary monetary policy.
Gunther Schnabl of the University of Leipzig complained that the ECB should focus on asset prices instead of consumer prices, which in any case could no longer influence them.
He called for interest rates to be gradually raised, irrespective of inflation, for example by a quarter of a percentage point a year. He assumed a reasonable interest rate of four to five percent. "This leads to a stable drive that gives people a positive perspective," he said.
Gunther Schnabl of the University of Leipzig complained that the ECB should focus on asset prices instead of consumer prices, which in any case could no longer influence them.
He called for interest rates to be gradually raised, irrespective of inflation, for example by a quarter of a percentage point a year. He assumed a reasonable interest rate of four to five percent. "This leads to a stable drive that gives people a positive perspective," he said.
It's a fairytale that low inflation hurts.
Jörg Krämer, chief economist at Commerzbank
The day before, Schnabl had already argued at an event of the asset manager Flossbach von Storch. Their chief economist Thomas Mayer had said: "Nobody will meet Schnabl's demand. We are dealing with an asymmetrical monetary policy: you let the party run, when it goes up, it only intervenes when it goes down. That's why I expect a major financial crisis in the next recession. Then the question arises of a system change. "
Schnabl criticized at the DVFA Congress also, the inflation is reported too low, because there are no quality reductions that are included. "There are quality reductions everywhere, the food does not taste anymore, the toys and the furniture are made of plastic," he criticized. In his opinion, services are getting worse: "Everywhere you have to serve yourself."
The day before, Schnabl had already argued at an event of the asset manager Flossbach von Storch. Their chief economist Thomas Mayer had said: "Nobody will meet Schnabl's demand. We are dealing with an asymmetrical monetary policy: you let the party run, when it goes up, it only intervenes when it goes down. That's why I expect a major financial crisis in the next recession. Then the question arises of a system change. "
Schnabl criticized at the DVFA Congress also, the inflation is reported too low, because there are no quality reductions that are included. "There are quality reductions everywhere, the food does not taste anymore, the toys and the furniture are made of plastic," he criticized. In his opinion, services are getting worse: "Everywhere you have to serve yourself."
Kerber accuses ECB of "omnipotence fantasies"
When the debate got lost in the question of where to buy bread rolls with or without service, Wieland intervened: "Anyone can buy bread, where he wants, that has nothing to do with monetary policy."
He quickly warned that it was very dangerous to demand that monetary policy be guided by direct asset prices. In fact, that would also amount to making the much-bemoaned manipulation of capital markets by the ECB a principle.
It became even wilder when professors Christoph Degenhart from Leipzig, Stefan Homburg from Hannover and Markus Kerber from the TU Berlin came to the podium with well-known ECB opponents. Homburg is an economist, the other two are lawyers and also sharply attacked the European Court of Justice, which had dismissed the ECB's controversial bond purchases. Among the three was Stefan Schneider, a sometimes seemingly intimidated economist of the Deutsche Bank, who occasionally tried to bring some calmness into the discussion.
Kerber criticized the oft-cited promise by ECB President Mario Draghi in 2012, voiced by many of his critics, that he would "do whatever it takes" to save the euro, as exceeding the mandate of the central bank. He pointed out that "Signor Draghi", as he called him, had said clearly that he would pursue this goal "within the mandate".
Kerber added: "The ECB postulates the freedom of law." He accused her of "omnipotence fantasies" and a claim to sovereignty, which is comparable to Hitler's former claim to leadership in the formulation of the notorious state theorist Carl Schmitt.
It was left to a participant of the audience, especially to counter this history clutter. The participant also objected to the allegation, the monetary politicians acted mainly in the national interest of their respective countries of origin.
In the course of the discussion, Kerber hinted that "the Greeks" are not really Europeans and therefore did not belong in the EU. Kerber received support from Degenhart.
The law professor spoke of a "delimitation of the mandate of the ECB and the encouragement of the European Court of Justice". Economist Homburg in turn said: "The ECB is completely contrary to their mandate, and this is taboo by politics and the media."
Schneider and Wieland tried to convey a few basic insights into monetary policy to the professor of economics, who also upset the ECB's various programs - whether it was successful or not.
Wieland finally tried to capture the whole discussion again. He clearly criticized the "one-sidedness" of the podium and commented on the course of the discussion: "We are not just on the wrong track here. We completely slipped. "
The criticism shows that the new ECB boss Lagarde will not have it easy. The hope lies on her that she will explain the monetary policy of the ECB to the German public better than before and thus make it palatable. In this context, she will meet the rejection of many German economists, while she is not an economist, but a lawyer.
It was left to a participant of the audience, especially to counter this history clutter. The participant also objected to the allegation, the monetary politicians acted mainly in the national interest of their respective countries of origin.
In the course of the discussion, Kerber hinted that "the Greeks" are not really Europeans and therefore did not belong in the EU. Kerber received support from Degenhart.
The law professor spoke of a "delimitation of the mandate of the ECB and the encouragement of the European Court of Justice". Economist Homburg in turn said: "The ECB is completely contrary to their mandate, and this is taboo by politics and the media."
Schneider and Wieland tried to convey a few basic insights into monetary policy to the professor of economics, who also upset the ECB's various programs - whether it was successful or not.
Wieland finally tried to capture the whole discussion again. He clearly criticized the "one-sidedness" of the podium and commented on the course of the discussion: "We are not just on the wrong track here. We completely slipped. "
The criticism shows that the new ECB boss Lagarde will not have it easy. The hope lies on her that she will explain the monetary policy of the ECB to the German public better than before and thus make it palatable. In this context, she will meet the rejection of many German economists, while she is not an economist, but a lawyer.
Critics see bond purchases as indirect public finance
For a long time now, the ECB has been subject to criticism by renowned economists in Germany. In part, this also applies to former central bankers, as the former ECB chief economist Otmar Issing has often said distanced to today's monetary policy of the central bank.
In addition, especially after the ECB meeting in September, the internal division between supporters of outgoing ECB President Mario Draghi and his opponents has deepened. Immediately after the meeting, Bundesbank President Jens Weidmann criticized the resolutions on new bond purchases. Klaas Knot and Robert Holzmann, the heads of the national central banks in the Netherlands and Austria, also went public with a similar agenda.
These critical economists consider the ECB's response to relatively low inflation to be greatly exaggerated. While Draghi's supporters, and, for example, the new ECB chief economist Philip Lane, want to combat inflation as close to the target of just under two percent as clearly as overshooting, Weidmann believes that much more patience is necessary if inflation is too low. Issing believes that only self-reinforcing deflation, that is, accelerated price erosion, must be resolutely combated.
Bond purchases are considered by critics partly as indirect state financing. For some of them, the blatant accusation that the ECB wants to support weak states in the south of the monetary union, or at any rate its low interest rates, helps to avert the need for fundamental reforms.
For a long time now, the ECB has been subject to criticism by renowned economists in Germany. In part, this also applies to former central bankers, as the former ECB chief economist Otmar Issing has often said distanced to today's monetary policy of the central bank.
In addition, especially after the ECB meeting in September, the internal division between supporters of outgoing ECB President Mario Draghi and his opponents has deepened. Immediately after the meeting, Bundesbank President Jens Weidmann criticized the resolutions on new bond purchases. Klaas Knot and Robert Holzmann, the heads of the national central banks in the Netherlands and Austria, also went public with a similar agenda.
These critical economists consider the ECB's response to relatively low inflation to be greatly exaggerated. While Draghi's supporters, and, for example, the new ECB chief economist Philip Lane, want to combat inflation as close to the target of just under two percent as clearly as overshooting, Weidmann believes that much more patience is necessary if inflation is too low. Issing believes that only self-reinforcing deflation, that is, accelerated price erosion, must be resolutely combated.
Bond purchases are considered by critics partly as indirect state financing. For some of them, the blatant accusation that the ECB wants to support weak states in the south of the monetary union, or at any rate its low interest rates, helps to avert the need for fundamental reforms.
For a while, the discussion about the so-called Target 2 balances played a role in Germany, through which payments between national central banks, which run via the ECB, are charged. The well-known economist Hans-Werner Sinn has repeatedly described these balances as loans and demanded a reduction or collateralization.
However, by far not all German economists are in this criticism. Isabel Schnabel, for example, who was newly proposed for the ECB Executive Board, endeavors to differentiate his arguments and resolutely opposed Sinn's allegations.
At the DVFA event, the ECB head of Bindseil had the chance to bring a slightly different perspective to the discussion in the afternoon. He explained that the ECB is guided by the "natural equilibrium interest rate", which can also be estimated as the sum of growth and inflation expectations. Because this sum is very low, the ECB is controlling it.
In his view, the euro zone would be much worse off without this monetary policy. An assessment with which he would have felt rather lonely on this day, in this place.
More: In a guest commentary, the chief economist of the Hamburg Commercial Bank writes: Mario Draghi has said clearly that fiscal policy is more in demand. His successor in the ECB is likely to agree.
However, by far not all German economists are in this criticism. Isabel Schnabel, for example, who was newly proposed for the ECB Executive Board, endeavors to differentiate his arguments and resolutely opposed Sinn's allegations.
At the DVFA event, the ECB head of Bindseil had the chance to bring a slightly different perspective to the discussion in the afternoon. He explained that the ECB is guided by the "natural equilibrium interest rate", which can also be estimated as the sum of growth and inflation expectations. Because this sum is very low, the ECB is controlling it.
In his view, the euro zone would be much worse off without this monetary policy. An assessment with which he would have felt rather lonely on this day, in this place.
More: In a guest commentary, the chief economist of the Hamburg Commercial Bank writes: Mario Draghi has said clearly that fiscal policy is more in demand. His successor in the ECB is likely to agree.
