European Central Bank (ECB) Chief Mario Draghi fulfilled one of Angela Merkel’s wishes ahead of this month’s German election when he took the first steps towards winding back the ECB’s cheap money stimulus scheme.
Germany has been at the forefront of criticism of the bond-buying programme announced by Draghi two and half years ago with the chancellor complaining in May to Berlin schoolchildren that the euro was “too weak” due to the ECB’s monetary policy.
But Merkel has been one of the main beneficiaries of the ECB’s monthly 60 billion euro ($72 billion) quantitative easing scheme and its decision to cut interest rates to historic lows.
Opinion polls show the chancellor’s conservative Christian Democrats (CDU) and their Bavarian-based Christian Social Union (CSU) allies as holding a commanding lead over their main rivals in the run-up to the September 24 election thanks in part to Germany’s solid economic performance.
“Low interest rates have supported domestic demand and the weak euro has, until recently, supported German exports,” said ING Bank economist Carsten Brzeski.
The ECB’s moves to cut borrowing costs have also been a key factor in driving the boom in the German housing industry, which in turn has been a boon to the building sector in the euro zone’s biggest economy.
Draghi announced that the ECB planned to consider steps next month for winding back its bond-buying scheme, which is forecast to total 2.3 trillion euros by the end of this year.
The announcement sent the euro surging by more than 1 per cent to 1.21 dollars with Draghi’s upbeat comments about the economy also helping to drive the currency higher.
The common currency has now gained about 14 per cent against the greenback since the start of the year.
Draghi’s critics believe the ECB may have overstepped its mandate in launching the monetary stimulus scheme, with several of them challenging aspects of the bank’s plan in court.
They have also been sceptical about the ECB’s success in firing up the euro zone economy, as well as seeing record low interest rates as having hit German savers, fixed income investments and bank profits.
While Merkel has tended to keep a low profile in the German debate about the ECB’s policy stance, other members of her government have not been so circumspect.
This includes Finance Minister Wolfgang Schaeuble, who has regularly criticized the bank.
Schauble told a conference this week organized by the German business daily Handelsblatt that “everyone hopes worldwide that we come to a normalisation (of monetary policy) as soon as possible.”
— dpa
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