The European Central Bank (ECB), increasingly under fire in Germany over its ultra-loose monetary policies, will likely go out of its way to defend its independence at next week's governing council meeting, analysts said. ECB President Mario Draghi "will respond to German politicians' recent criticism ... by reiterating the bank's independence and stressing that more support is still possible," said Capital Economics economist Jennifer McKeown. German Finance Minister Wolfgang Schaeuble has been unusually frank about his growing displeasure at the ECB's decision to slash interest rates to zero, suggesting that the policies were helping foment political unrest in Europe's biggest economy and aiding the rise of an anti-euro, anti-immigrant party, the AfD.
German governments have traditionally steered away from commenting on ECB decisions so as not to be perceived to be trying to meddle with the central bank's independence. But record low interest rates are squeezing German banks' profits and also hurting the country's savers, and political figures are now speaking out. Last week, Schaeuble was quoted in media reports as saying: "I told Mario Draghi: be very proud - you can attribute 50 percent of the results of a party that seems to be new and successful in Germany to the design of this [monetary] policy."
The AfD party was originally launched as an anti-euro platform, but has subsequently adopted a populist xenophobic message, on the back of which it made large gains in regional elections last month. The ECB is battling to push up the rate of inflation in the single currency area to levels it considers compatible with healthy economic growth, and it insists its mandate must only take into account the single currency area as a whole, not individual countries.
The spat has led some unexpected allies to rally around Draghi. French Finance Minister Michel Sapin leapt to the central bank's defense. "France has learned, with difficulty, that the ECB's independence must be respected absolutely and completely," he said, urging Germany to show the same restraint it had so frequently preached to it and other countries in the past. "The Germans mustn't lose their good habits," Sapin said. "Our German friends should remember that they themselves had always stressed the need for the ECB to be independent," he added.
Even Bundesbank President Jens Weidmann, also an outspoken critic of the ECB's policies, joined in the fray. "It's not unusual for politicians to have opinions on monetary policy, but we are independent," he said. "The ECB has to deliver on its price stability mandate and thus an expansionary monetary policy stance is appropriate at this juncture regardless of different views about specific measures."
Weidmann, who has himself often been at loggerheads with Draghi over the ECB's response to the threat of deflation in the euro area, argued that the debate in Germany focused too narrowly on the consequences of low interest rates for savers. "The debate does not focus enough on the broader macroeconomic consequences of monetary policy. People are not just savers: They're also employees, taxpayers and debtors, as such benefiting from the low level of interest rates," the Bundesbank chief said.