June 6, 2014 / 1:10 PM / in 4 years

Activist Draghi rings alarm bells in Germany

* Draghi pushes ECB rates to record lows

* German media, politicians see moves as risky

* Rise in stocks, property prices fuel overheating fears

* Merkel to meet ECB president next week

By Noah Barkin

BERLIN, June 6 (Reuters) - Mario Draghi’s bid to jump-start Europe’s economy by pushing interest rates to record lows has been greeted with dismay in Germany, his policy denounced as a “risky therapy” that could fuel U.S.-style asset bubbles and discourage reform in crisis-hit euro states.

In a country still haunted by the hyper-inflation of the 1920s and where the uber-prudent Swabian housewife is held up as a model, the Italian ECB chief’s latest attempt to save the currency bloc drew the ire of economists, editorialists, Germany’s new anti-euro party and even allies of Angela Merkel.

“Gone are the days when the guardians of Europe’s currency focused solely on price stability as if the inflation ghosts of 1923 lurked behind every corner,” the Sueddeutsche Zeitung wrote next to a cartoon of Draghi flipping a euro coin.

“For years now Europe has adopted another model: the American one. In this model, central banks are here to rescue - banks, currencies and even growth,” it said. “German savers lose their money because interest rates are so low, and the cheap credit fuels real estate and stock market bubbles - like in the United States before the financial crisis.”

Juergen Stark, a former European Central Bank board member who quit in 2011 in protest at the crisis policies of Draghi’s predecessor, Frenchman Jean-Claude Trichet, accused the Italian of “targeting specific countries” - presumably slow-growing southern ones - at the expense of the euro zone as a whole.

“This is an attempt, one could say a desperate attempt, to get credit flowing again, but the structural problems of these countries won’t be solved this way,” Stark told German radio station Deutschlandfunk.

“The ECB is clearly moving in the direction of fiscal policy fine-tuning, towards a sectoral or regional monetary policy so to speak. This is not its job and it is departing from the idea of a single monetary policy for the entire currency area.”

Even Norbert Barthle, a budget expert for Chancellor Merkel’s Christian Democrats (CDU) in parliament, said he was “unhappy” about a move that was “not in our interests”.


The ECB announced on Thursday that it was cutting its benchmark interest rate to a record low 0.15 percent. But more disturbing to many Germans was the signal it sent by simultaneously lowering of its deposit rate into negative territory.

The move forces banks for the first time to pay to park their money with the ECB overnight. The central bank hopes this will encourage them to lend more. Tight credit, particularly in southern Europe where banks are still saddled with portfolios of bad loans, is seen as one of the chief causes of weak growth and deflationary price conditions.

But in Germany, where the savings ratio of 10 percent is among the highest in the entire 28-nation European Union, the step is being seen as a penalty on those who have the good sense to squirrel away their money - like the fictional “Hausfrau” that Merkel herself praised repeatedly during the euro crisis.

“ECB shocks savers and cheers debtors,” Berlin daily Tagesspiegel blared from its front page.

“How desperate must they be in the Eurotower to risk so much?” wrote Holger Steltzner of the arch-conservative Frankfurter Allgemeine Zeitung in an editorial.

Bernd Lucke, the leader of the Alternative for Germany (AfD), a one-year-old anti-euro party that won 7 percent of the German vote in elections to the European Parliament last month, accused the ECB of using monetary policy to address structural flaws in the euro project.

“It is overstepping its mandate and overestimating its potential,” Lucke said in an email to Reuters.

The rise of the AfD could make it more difficult for Merkel and her government to openly defend Draghi, as they have until now. She is due to hold talks with the ECB president in the Chancellery next week, the government announced on Friday. It said the meeting had been planned for a long time and was not linked to Thursday’s decisions.


In addition to the rate cuts, Draghi announced a new 400 billion euro scheme - with the cumbersome name “targeted longer-term refinancing operations”, or TLTROs - that is designed to boost bank lending.

And he fueled expectations that the ECB could introduce a broad-based asset purchase programme - so-called quantitative easing - by saying: “Are we finished? The answer is no. We aren’t finished here.”

Draghi won over many Germans, and silenced critics like Stark and Bundesbank chief Jens Weidmann, with his “whatever it takes” promise to protect the euro in 2012, which effectively ended the acute phase of the euro zone’s financial crisis by making clear that the ECB would act as a lender of last resort.

Fears that his looser policy would spark inflation have not been borne out. On the contrary, Germany’s annual inflation rate fell under 1 percent last month to a 4-year low.

But the latest ECB plans are coaxing German sceptics out of the woodwork again. Despite the low inflation, they are pointing to other signs that a prolonged period of “easy money” is distorting the economy.

Draghi’s announcements on Thursday pushed the German benchmark stock index over the 10,000 point mark for the first time.

German media have also seized on recent gains in house prices in some major cities, suggesting this may be the beginning of the kind of property bubble which burst in countries like the United States, Spain and Ireland to devastating effect. (Additional reporting by Gernot Heller, Hans-Edzard Busemann and Michelle Martin; Writing by Noah Barkin; Editing by Peter Graff)

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