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: greg.quinn@marketnews.com

[TOPICS: M$E$$$,M$G$$$,M$X$$$,MC$$$$,MI$$$$,M$$CR$,MFG$$$]