Germany dissatisfied with ECB's loose monetary policy
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Loading... - Joanna Bailey
- 29 Dec 2021
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In Germany, dissatisfaction is growing over the loose monetary policy practiced by the European Central Bank (ECB).
The German business world began criticizing the ECB's bond purchases and zero interest policy due to “high inflation.”
According to the German press, Dirk Jandura, president of the Federation of German Wholesale, Foreign Trade and Services (BGA), said the ECB made a mistake and argued that the bank's loose stance caused serious side effects.
"The fact that the ECB helps stabilize public finances in times of crisis may be politically justified, but not in the long run. In the long term, it jeopardizes trust in the currency by destroying its value," he said, calling on the ECB to end its loose monetary policy.
Peter Adrian, president of the Association of German Chambers of Industry and Commerce (DHIK), also criticized the ECB's strategy in the face of high inflation and said the business world is concerned that the ECB still "does not signal a real exit from the loose monetary policy.”
The German Confederation of Skilled Crafts (ZDH) also said that the ECB should give the first signals for a more cautious monetary policy as soon as possible so that the current price dynamics do not persist in the long run.
Achim Berg, president of Germany’s Federal Association for Information Technology, Telecommunications and New Media (BITKOM), expressed concerns about various inflation factors such as increasing raw material and energy prices, carbon pricing, persistent supply bottlenecks and excessive demand for many products and goods, adding the ECB should not fuel the fire with a sustained super-cheap monetary policy.
Is ECB fueling inflation?
In recent months, representatives of the German economy and banks have begun accusing the ECB of fueling inflation by "distributing money" instead of keeping inflation under control.
The ECB did not change interest rates in line with market expectations on Dec. 16, confirming that the Pandemic Emergency Purchase Program (PEPP) will end in March 2022 and giving the first signals that its loose monetary policy will come to an end.
Besides, the ECB said it will make monthly net purchases of €40 billion ($45.3 billion) in the second quarter and €30 billion ($34 billion) in the third quarter under the Asset Purchase Program (APP) while continuing to purchase billions of euros worth of government and corporate bonds. It was noted that the bank will reinvest with its bond portfolio in PEPP until the end of 2024.
ECB President Christine Lagarde said the bank does not foresee an interest rate increase in 2022 according to the current conditions and that the zero interest policy should be continued next year.
Lagarde stated that the bank has reason to believe that energy prices, which cause high inflation in the euro area, will fall significantly by the end of 2022.
“I see an inflation profile that looks like a hump. The hump will decrease sooner or later. We anticipate that inflation will fall in 2022, and I am sure of that," she added.
While the US Federal Reserve foresees three interest rate hikes in 2022 due to high inflation, the Bank of England's immediate increase in the policy interest rate increases the pressure on the ECB, especially due to the import inflation risk.
The ECB raised its inflation forecast for 2022 from 1.7% in September to 3.2% in December. Read More…
