No new measures expected at ECB meeting on Thursday, but Germany unlikely to appreciate what it hears ......

Tuesday 19th April 2016

  

No new measures expected at ECB meeting on Thursday, but Germany unlikely to appreciate what it hears ......

ref :- "Low ECB Rates Leave Germans Worried About Dwindling Savings" , Bloomberg Markets

Last month European Central Bank President Mario Draghi  announced a cut in its benchmark interest rate to 0% and in its deposit rate to minus 0.4% (as well as expanding its QE bond-buying programme). Generally speaking, the measures were accepted as legitimate attempts to kick-start some growth and to tackle deflationary pressures, although they did not meet with universal approval. In particular, German politicians have had plenty to say about the effects of zero or below-zero rates and very little of it has been complimentary.

Germany has specific issues when it comes to such interest rate regimes. Forgive us the national stereotyping for one moment, but its population is by and large more conservative with their money than many of its Eurozone partners and therefore more likely to save money than to put it into the stock market or real estate, say. According to Deutsche Postbank AG, one consequence of ever lower rates to German citizens since Mr Draghi became ECB boss in 2011 has been a loss of 125bn euros in interest income. Germany also has a rapidly ageing population, who with more than an eye on retirement are especially sensitive to falls in their own prospective income.

If ultra-low rates are intended to discourage citizens from saving cash and to spend it instead, it's having the opposite effect. Faced with diminishing returns from savings accounts (and government bonds, come to that), Germans are having to multiply the amounts they put into these safest of instruments just to secure the same return ..... and unsurprisingly, they're not too happy about it. They find it difficult to understand why they are suffering at a time when Germany's economy is doing pretty well, and they feel that both as individuals and as a nation Germany's savings are being sacrificed for European monetary policy. 

In short, the feeling is that wealth is being redistributed from richer, more disciplined nations within the Eurozone to those with less impressive fiscal credentials and that is not part of the ECB's mandate. It's certainly got the German politicians going. As we said last week, the combative Finance Minister Wolfgang Schaeuble has blamed distrust of European institutions for much of the rise of the populist, right-wing AfD party. Bundesbank President Jens Weidmann pointed out that ECB has to take a broader view of things than just the effects of policy on German savers, and warned against politicians putting pressure on Central banks. He should probably be applauded for such an admonishment, if only because he is plainly no fan of rates down at these levels himself.

And so to Thursday, and the next ECB monetary policy decision. Don't expect Mr Draghi to announce any new measures this time round, but do expect his rhetoric to maintain the tone that has prompted a majority of economists surveyed by Bloomberg to predict further easing after the summer. That prospect won't go down too well in Berlin, where by that time the politicians may already be flexing their muscles at the resurfacing of the Greek crisis. All things considered, and taking both issues into account, it doesn't seem like they're going to remain silent for long whatever anybody tells them.