By Jörn Poltz and Francesco Canepa
MUNICH/FRANKFURT (Reuters) – The head of Germany’s Bundesbank defended the European Central Bank from critics in his own country on Friday, saying a central bank’s job was not to guarantee savers’ returns but to achieve its inflation target.
Savers, banks and fund managers in Germany have been vocal about the negative impact of the ECB’s ultra-low interest rates on their returns and, in an unusual intervention, German chancellor Angela Merkel last week described the debate about this policy as legitimate.
Finance Minister Wolfgang Schaeuble even argued that the ECB’s stance was partly to blame for the rise of the right-wing anti-immigration party, Alternative for Germany (AfD).
While acknowledging the dangers for financial stability associated with a loose monetary policy and giving a lukewarm assessment of its asset purchase programme, Bundesbank president Jens Weidmann broadly sided with the ECB on Friday.
“(Central banks) cannot promise minimum returns for savers because they must focus on the broader economic impact of their monetary policy,” Weidmann, who sits on the ECB’s decision-making body, told an audience in Munich.
Echoing comments by ECB President Mario Draghi, Weidmann emphasised there had been periods of negative real savings rates even before the euro and added higher returns are achieved by investing in shares and mutual funds.
He added: “Long-term rates depend equally on long-term inflation expectations and on the economy’s growth prospects. Interest (income) for investors doesn’t fall from the sky, it must be earned by companies.”
Weidmann said it was up to commercial banks to ensure they are profitable by cutting costs, fixing their business model and balance sheet, or even merging with each other.
He reiterated his view that the ECB’s policy was appropriate as well as scepticism of the bank’s quantitative easing scheme, which he described as an emergency tool against a sustained fall in prices, or deflation.
“The deflation risk is small, particularly because subdued inflation is largely due to the fall in oil prices,” Weidmann said.
Inflation in the euro zone is hovering near zero and has not come close to the ECB’s target of just under 2 percent for three years.
Weidmann acknowledged ultra-low rates can entail risks for the stability of the financial system, which can in turn jeopardise price stability.
(Editing by Balazs Koranyi and John Stonestreet)
