Thread by @MFratzscher

Populism Germany style: “When saving makes you poor: zero interest rates are destroying the wealth of Germans.”

Today’s cover of @DerSPIEGEL , Germany’s most important weekly magazine.

The lead article is less biased, but is it responsible to further feed populist sentiment?

Germany is sliding into a dangerous anti-Europe, anti-ECB hysteria, which threatens to damage the ECB‘s credibility, the euro and ultimately all of Europe.

It is high time for an honest dialogue and for exposing the 20 German myths about #ECB monetary policy:

20 German myths about ECB monetary policy:

Myth #1:
The ECB alone is responsible for low interest rates.

Fact: interest rates are the results esp. of high savings and low investment, esp. in Germany. Governments have a big impact on interest rates via investment and growth.

Myth #2:
ECB monetary policy is an expropriation of the German saver.

Fact: Citizens are not just savers - they are employees and taxpayers as well. 11 million jobs (and higher incomes) have been created in the euro area, which would not have been possible without ECB policies.

Myth #3:
Low interest rates cause a fall in the saving rate.

Fact: That would be good, but it has not been the case. Germany has a far too high saving rate, €200 billion of net savings per year, or > 6% of GDP. Excess savings have been crucial in driving interest rates lower.

Myth #4:
ECB monetary policy raises inequality and hurts the poor.

Fact: That is wrong — 40% of Germans have no net savings. It is esp. their jobs that have been protected by low interest rates. A premature rise in interest rates would endanger esp. their jobs and incomes.

Myth #5:
Germany and Europe would do much better in economic, social and political terms without the expansionary ECB monetary policy.

Fact: The ECB under Mario Draghi has prevented an economic depression in Europe with its promise “to do whatever it takes”.

Myth #6:
Interest rates in Germany have never been as low as today.

Fact: Real interest rates have been negative one third of the time under the Bundesbank and the D-Mark since the 1970s - i.e. building wealth via the saving account has never worked.

Myth #7:
The expansionary ECB monetary policy will lead to high inflation in the long run.

Fact: The ECB has all instruments to prevent this. The much bigger risk today is the opposite — continued (secular) stagnation and too low inflation.

Myth #8:
The ECB should focus on other objectives than price stability.

Fact: Price stability is the primary mandate that governments have given to the ECB. Pursuing a different objective would mean for the ECB to breach its mandate.

Myth #9:
Deflation is not costly.

Fact: Deflation is just as costly as too high inflation, but it is much harder for a central bank to fight. Deflation causes earnings to decline and makes serving debt more difficult, thereby inducing lower investment, growth and fewer jobs.

Myth #10:
ECB monetary policy is responsible for overvalued real estate prices in Germany.

Fact: Low interest rates may contribute, but the main responsibility lies with governments and regulators for not doing enough in helping increase supply and fixing dysfunctional markets.

Myth #11:
The ECB is not conducting monetary but fiscal policy, as low interest rates help governments finance their debt.

Fact: All monetary policy decisions change financing conditions for citizens, firms & governments- it does not make monetary policy a form of fiscal policy.

Myth #12:
ECB policy is morally wrong, as it is creating moral hazard for governments to pursue the wrong policies.

Fact: It is not the right of a central bank to decide what the “right” economic policies are. Only governments and citizens are entitled to do so in a democracy.

Myth #13:
The ECB’s purchase of government bonds is illegal and ineffective.

Fact: Both claims are wrong. The European Court of Justice (ECJ) has ruled that ECB bond purchases are legal. QE has been effective in helping improve credit growth to the private sector.

Myth #14:
It has been the intention of the ECB to help over-indebted southern European governments to finance their debts.

Fact: This claim is absurd— 25 independent members of the ECB Governing Council decide, with the mandate to take the best decision for the entire euro area.

Myth #15:
ECB policy is creating zombie banks & firms, which are detrimental to the economy.

Fact: It is not the task of the ECB to decide which companies should survive, but of supervisors & policy-makers. It is the ECB‘s task to help improve financing conditions for all firms.

20 myths about ECB monetary policy:

Myth #16:
ECB monetary policy is creating a transfer union, with a paymaster Germany.

Fact: The ECB is recording record profits from which all governments benefit and its policies have protected esp. also German exports and investment abroad.

Myth #17:
Target2 claims by the Bundesbank are causing high costs for Germany.

Fact: The payment system Target is essential for a functioning monetary union and has not cost Germany a single euro. Increased financial stability benefits also German firms and citizens.

Myth # 18:
German interests are not protected by the ECB as Germany is outvoted in ECB decisions.

Fact: There is no inconsistency between GER & EU interests. A strong, stable monetary union is in the best interest of Germany. And the Bundesbank is playing a very important role.

Myth #19:
The ECB is endangering its own independence and credibility.

Fact: The scapegoating by German politicians, media and banks, making the ECB responsible for national mistakes - and not ECB monetary policy - is what truly damages the ECB’s independence and credibility.

Myth #20:
Only political union can save the euro.

Fact: The euro is a success. The required reforms — banking and capital market union, a common budget and better rules — are realistic. What is lacking is the political will, esp. in Germany.

Conclusion about the 20 German myths about ECB monetary policy:

We have to return to an honest, factual debate about ECB monetary policy. Otherwise we are going to damage Europe and the #ECB, and thus one of our most important European institutions.