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Low rates causing 'huge problems' for Germany
Wolfgang Schaeuble, Germany's finance minister, says there is too much central bank money and debt in the world
Mr Schaeuble also said that bond buying by the European Central Bank meant countries had less incentive to reform Photo: AP
By Reuters
4:37PM GMT 26 Mar 2015
116 Comments
Ultra low interest rates are causing "huge problems" for Germany, the country's finance minister has said.
"We have an interest rate environment that is causing huge problems for us in Germany," Wolfgang Schaeuble said at a banking event in Berlin.
However, he added that he was not criticising the European Central Bank (ECB), which needed to defend its inflation target.
"A low interest rate leads to a misallocation of resources with all the risks and side-effects that you see when bubbles are forming," he said, adding that there was too much central bank money and debt in the world.
Mr Schaeuble also said that bond buying by the European Central Bank meant countries had less incentive to reform.
In a separate hearing, Mario Draghi, the president of the ECB, said its bond-buying programme would give countries more breathing space to enact reforms. he said the benefits of quantitative easing were already taking effect.
"Monetary policy is reinforcing the cyclical recovery. I insist in saying 'cyclical' because this recovery is not structural," he told a parliamentary committee hearing, in a reference to long-term problems such as unemployment.
He said there has been a particularly noticeable effect in lowering the level of the euro against other currencies.
The ECB has cut interest rates to record lows, lent banks billions of euros in cheap funds and begun buying sovereign bonds to try to bolster the euro zone economy and bring inflation back from zero to its target of close to 2pc.
However Draghi repeated his mantra that eurozone governments had to do their part to boost productivity and growth by passing structural reforms to their economies and said that weakness in any one country hampered the entire bloc.
"Low potential growth creates macroeconomic imbalances and the vulnerability which arises has reverberations in other countries of the area," he said.
He also reiterated that the bank could not buy Greek sovereign bonds as part of QE to bolster the economy.
"QE does not buy Greek bonds for three reasons. The first is that it doesn't buy bonds of countries that are in a programme with the IMF and the European Commission when the review of this programme has not been completed. As you know, in Greece the review was suspended," Mr Draghi told Italian MPs.
Mr Draghi said the other reasons for not buying Greek bonds were that their credit rating was too low and that the ECB could not buy bonds from a country above a certain percentage - to avoid "arriving at a point where it becomes a country's biggest creditor".
Wolfgang Schaeuble, Germany's finance minister, says there is too much central bank money and debt in the world
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Mr Schaeuble also said that bond buying by the European Central Bank meant countries had less incentive to reform Photo: APBy Reuters
4:37PM GMT 26 Mar 2015
116 Comments Ultra low interest rates are causing "huge problems" for Germany, the country's finance minister has said.
"We have an interest rate environment that is causing huge problems for us in Germany," Wolfgang Schaeuble said at a banking event in Berlin.
However, he added that he was not criticising the European Central Bank (ECB), which needed to defend its inflation target.
"A low interest rate leads to a misallocation of resources with all the risks and side-effects that you see when bubbles are forming," he said, adding that there was too much central bank money and debt in the world.
Mr Schaeuble also said that bond buying by the European Central Bank meant countries had less incentive to reform.
In a separate hearing, Mario Draghi, the president of the ECB, said its bond-buying programme would give countries more breathing space to enact reforms. he said the benefits of quantitative easing were already taking effect.
"Monetary policy is reinforcing the cyclical recovery. I insist in saying 'cyclical' because this recovery is not structural," he told a parliamentary committee hearing, in a reference to long-term problems such as unemployment.
He said there has been a particularly noticeable effect in lowering the level of the euro against other currencies.
The ECB has cut interest rates to record lows, lent banks billions of euros in cheap funds and begun buying sovereign bonds to try to bolster the euro zone economy and bring inflation back from zero to its target of close to 2pc.
However Draghi repeated his mantra that eurozone governments had to do their part to boost productivity and growth by passing structural reforms to their economies and said that weakness in any one country hampered the entire bloc.
"Low potential growth creates macroeconomic imbalances and the vulnerability which arises has reverberations in other countries of the area," he said.
He also reiterated that the bank could not buy Greek sovereign bonds as part of QE to bolster the economy.
"QE does not buy Greek bonds for three reasons. The first is that it doesn't buy bonds of countries that are in a programme with the IMF and the European Commission when the review of this programme has not been completed. As you know, in Greece the review was suspended," Mr Draghi told Italian MPs.
Mr Draghi said the other reasons for not buying Greek bonds were that their credit rating was too low and that the ECB could not buy bonds from a country above a certain percentage - to avoid "arriving at a point where it becomes a country's biggest creditor".
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