2023-06-01 18:40:49
Dhe former Savings Bank President Georg Fahrenschon was one of the harshest critics of the interest rate policy of the European Central Bank during his term of office from 2012 to 2017. He accused the ECB of “planting the seed for the next financial crisis” with its bond purchases, and feared that the negative interest rates introduced in 2014 would force the savings banks “to become yield jugglers, credit gamblers or liquidity bargain hunters”. Fahrenschon’s successor, Helmut Schleweis, on the other hand, began adopting more moderate tones towards the ECB in a somewhat resigned manner from 2018 onwards.
Since the summer of 2022, the savings banks have been supporting the ECB’s regular rate hikes. This complicated relationship entered the next phase this Thursday: Schleweis didn’t even mention the ECB’s interest rate policy in front of the 2700 participants at the 27th Sparkassentag in Hanover in his more than half-hour speech, which was greeted with standing ovations.
Digital euro as central topic
This reluctance was not because Schleweis knew that ECB President Christine Lagarde would speak after him. It’s a rarity though. Lagarde’s predecessor Mario Draghi stayed away from all Sparkasse days. The last person to speak for the ECB at this savings banks event, which usually takes place every three years, was President Jean-Claude Trichet in 2004. Even today, the savings banks do not avoid conflicts with the ECB, which has been the responsibility of large state banks since 2014 is also the banking supervision.
For Schleweis, there are only currently more important issues than interest rate policy: the digital euro, for example, which the ECB is examining to introduce as central bank money, and – this is the fear not only of the savings banks, but also of the commercial banks represented in the Federal Association of Private Banks such as Deutsche Bank and Commerzbank – could become a competitor in payment transactions. The upper limit of EUR 3,000 for digital euros held by consumers in accounts in the ECB, which ECB Director Fabio Panetta brought up for discussion, is considered to be arbitrary and can be increased at any time.
Schleweis, apparently fearing that deposits from the savings banks would be lost to the ECB, asked in his speech whether the central bank should have accounts for end customers at all. And whether payments would be politically controlled and tracked with money programmed by the ECB. Lagarde responded to this in her speech, deviating from the manuscript. The digital euro will be the business of commercial banks, not that of the ECB, she clarified. People should be able to choose whether to pay with cash or digital euros.
In his free speech, Federal Finance Minister Christian Lindner (FDP) advocated that the ECB be innovative and introduce digital central bank money as a strategic geopolitical measure, for example with a view to China, which is pushing the digital yuan. Lindner is also in favor of Germans having direct access to digital central bank money through an ECB account, which is necessary in times of increasing online purchases. But the digital payments would have to be as anonymous and data-protected as with cash. Lindner put it in a nutshell: It should be possible to buy chocolate with digital euros, even if it might not be desirable in terms of health policy.
Pay attention to prices that permanently determine inflation
ECB President Lagarde left no doubt that inflation is too high and further interest rate hikes are needed to combat it – probably next time on June 15th. Since July 2022, the ECB has increased its deposit rate by 3.75 percentage points from minus 0.5 percent to 3.25 percent. How much the key interest rate still has to rise will depend above all on how companies and employees use the leeway that energy prices are no longer rising. This is not for the ECB to decide, said Lagarde. On the contrary, companies could increase their goods prices less than in the past or even lower them, which would dampen inflation rates. However, companies could also offer their employees higher wages which, according to the ECB President, would be 4 percent below the level before the outbreak of the corona pandemic in real terms, i.e. after deducting inflation in Germany. However, the risk of persistently high inflation then increased.
At least the ECB will not only make its future interest rate decisions dependent on the medium-term general inflation outlook. Lagarde announced that the ECB would instead focus on core inflation adjusted for food and energy prices on the prices that have a particularly long-term impact on inflation.
Lindner wants to support the ECB in the fight against inflation to ensure that the federal government adheres to the debt limit. In times of high inflation, it would be counterproductive to take on more debt, the finance minister said. The debt limit is not his personal fetish, but a requirement of the constitution and economic reason.
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