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MNI POLICY: NIRP Not ECB's Fault, Schnabel Tells Angry Germans

By Luke Heighton
     FRANKFURT (MNI) - German attacks on monetary policy are frequently based on
"false narratives," the country's newest ECB Executive Board member said in her
first official speech Tuesday.
     "Excessive" German criticism of the ECB "jeopardizes trust in our single
monetary policy," Isabel Schnabel said. It also ignores how Germany benefits
from unconventional monetary policy.
     Here are key points from the speech in Karlsruhe:
     - Schnabel identified negative interest rates as the chief cause of these
deep feelings of discontent. However, the vast and enduring current account
surplus means that in Germany much more is being saved than invested, she said.
     - The need for negative interest rates and asset purchases is "largely a
consequence of structural changes in the economy that lie beyond the ECB's
control," Schnabel said, but it is "primarily up to other policymakers" to
counter their side-effects.
     - "It is not primarily the central bank that is responsible for low
interest rates," Schnabel said. "The call for higher interest rates should
instead be directed at governments and legislators, combined with the urgent
demand for measures to strengthen the growth potential of our economies."
     - "In the current situation," she continued, "a fundamental departure from
this policy does not seem appropriate, not least in view of the weak economic
developments in Germany as well as in other parts of the euro area."
     - Schnabel took aim at the suggestion, frequently voiced the ECB's German
critics, that German savers being "expropriated" as a result of negative
interest rates. "There is no entitlement to high interest rates on savings," she
said, "which is what the term expropriation implies. And it is not part of the
ECB's mandate to ensure high interest rates for savers."
     - Fears that monetary policy entails risks for financial stability "should
indeed be taken very seriously," Schnabel said, and developments in real estate
prices are "rightly coming under particular scrutiny," notably in Germany.
     - But she pointed to the the fact that private indebtedness in Germany and
in the euro area as a whole (relative to GDP) "has barely risen in recent
years," differing "markedly" from the development prior to the global financial
crisis, as evidence that such concerns are often over-stated.
--MNI Ottawa Bureau; +1 613-314-9647; email:
[TOPICS: M$E$$$,M$G$$$,M$X$$$,MC$$$$,MI$$$$,M$$CR$,MFG$$$]

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