European Central Bank President Mario Draghi traveled to Berlin today to face some of his harshest foes: the German lawmakers of the German Bundestag. This was his first trip through the doors of the Reichstag Building since October 2012, when he appealed to lawmakers to support his plan of unlimited purchases of government debt. His reception was even more hostile this time.
Nation of Savers
The German government has been an opponent of expansionary ECB policy for many years. This echos the fiscally responsible attitudes of the German people, who have felt that they are paying for the profligate spending of the Italians, Greeks, and Spaniards. The feeling in Germany is that Draghi's easy money regime is allowing those governments to continue spending above their means, instead of implementing necessary reforms.
The champion of those seeking to limit the ECB's mandate for implementing extreme monetary is German Finance Minister Wolfgang Schaeuble. Schaeuble even went so far as to publicly exhort the legislators of the Bundestag to get tough with Draghi when questioning him about the ECB's negative interest rates and expanding quantitative easing program.
Berlin Lawmakers Feel The Heat
Even if some members of the lower house of the German parliament weren't stridently opposed to Draghi's policies, their constituents are. Conservative lawmaker Michael Stuebgen, a member of Chancellor Andrea Merkel's ruling party, initially supported Draghi's extraordinary measures in the wake of the 2012 EU economic crisis. After hearing first-hand from the head of a local savings bank how ECB policy was destroying German banks, Stuebgen is convinced that Draghi must be forced to abandon his quantitative easing programs.
Another skeptic in the Bundestag is Bavarian lawmaker Hans Michelbach. Stating that “[w]e don’t see that this policy has been successful in any way, either on budget deficits or on economic growth,” Michelbach planned to press Draghi for "clear answers on what monetary policy has achieved, apart from an expansion of joint liability in the euro zone.”
Draghi is not completely devoid of allies in the Bundestag. Social Democrat lawmaker Axel Schaefer credited him for saving the EU during the 2012 financial crisis: “Without Draghi’s monetary policy there wouldn’t be a euro zone anymore. That’s something to be considered.”
Even though German opposition to easy money and living beyond your means is deeply rooted in the national psyche, the recent wave of thousands of Syrian and other Middle Eastern immigrants entering the country has thrown Germany into turmoil.
This double whammy to German society has fueled the rise of far-right political parties such as Alternative für Deutschland (AfD). Originally formed in 2013 in reaction to ECB bank bailouts, the Euroskeptic party has since expanded its anti-immigrant stance. Their growing appeal to voters is ringing alarm bells in Berlin. Recent nationwide polls show AfD with 16% support.
The role that ECB easy money policies have played (harming pensioners and savers, for instance) in the rise of AfD compelled German Finance Minister Schaeuble to blame Draghi personally: "...be very proud. You can attribute 50% of the results of a party that seems to be new and successful in Germany (AfD) to the design of this [monetary] policy.”
With the refugee crisis increasing Euroskeptic sentiment in Germany, it is much more politically expedient to focus on the European Central Banks "sins." The ECB and Mario Draghi himself can be vilified by politicians and the press with little danger of blowback.
Revenge of The Draghi
Common consensus that Draghi would try to appease and reason with German lawmakers today were shockingly off the mark. In a totally unexpected move, Draghi threatened the Bundestag, telling them that continued public attacks on ECB policy would require him to double down on his easy money programs.
He also countered assertions by lawmakers that negative interest rates and quantitative easing had harmed German citizens, saying, "On balance, savers, employees, entrepreneurs, pensioners and taxpayers across the euro area, including in Germany, are better off because of our actions -- today and tomorrow.
When challenged that the ECB's negative interest rates were hurting banks, he deflected the blame onto the banks themselves. He said that billions of dollars in fines from illegal activities and refusal to undertake structural changes were the reasons European banks are in trouble. Questioned specifically about Deutsche Bank, Draghi spoke in general terms, saying, “If a bank represents a systemic threat for the euro zone, this cannot be because of low interest rates. It has to do with other reasons.” Additionally, he defended his monetary policies, claiming that the ECB prevented a European Great Depression.
Draghi probably enjoyed going on the offensive against his most vocal critics, but he will find that there is a price to pay, even in the land of negative interest rates.
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