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Statement on ECB interest rate decision

The ECB keeps its options open about the exit of its expansionary monetary policy stance. There has been no significant change in ECB communication. The statement by President Draghi makes a very gradual tapering of its bond purchases in 2018 the most likely path. Many open questions about ECB monetary policy remain unanswered. It is still open when the ECB will end its bond purchases and when it will start raising interest rates.

The overreaction of financial markets to ECB … [continue reading]

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Statement on the ECB council meeting (June 8, 2017)

The ECB has now cautiously started its monetary policy reversal, even if only through words rather than deeds. The change in communication is an important step in the right direction.

Many in Germany consider the ECB’s exit as too slow. Many underestimate the importance of the ECB decision, which signals a sustained monetary policy tightening for the first time in more than ten years. The ECB is right in preparing the exit gradually and not abruptly in order not to … [continue reading]

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Statement on the ECB council meeting (April 27, 2017)

It is wise for the ECB to stick to its policy strategy and not let itself be impressed by criticism from Germany. The pressure from Germany for the ECB to end its expansionary policy stance prematurely has increased. The ECB is right to resist the pressure from Germany as the economic and financial risks for the euro area are still significant.

The ECB is only gradually getting closer to meeting its price stability mandate as in particular core inflation is … [continue reading]

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Statement on today’s meeting of the Council of the European Central Bank (ECB)

The ECB is right to orientate its policy towards price stability at the mid-term and not to react to short-term price movements. Calls for an early exit of the ECB’s expansive policy are misplaced and premature. The price dynamics of the past two months mainly reflect a normalization of energy prices. The euro area economy remains weak and unemployment rates are too high to allow for a quick return to price stability and for an end to the expansive monetary … [continue reading]

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Germany’s Misunderstood Trade Surplus

Now that Germany’s current-account surplus has reached a record €270 billion ($285 billion), or close to 8.7% of GDP, the ongoing debate about its economic model has intensified. Eurozone politicians and Donald Trump’s administration in the United States are each blaming the other for the economic imbalance; and all are blaming the euro.

Trump’s administration, for its part, has attacked Germany for exporting too much, and accused it of manipulating the euro. In fact, Germany’s trade surplus has little to … [continue reading]

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Germany’s savings madness

This text was also published in German in  ZEIT ONLINE on February 17,  as part of the op-ed column “Fratzschers Verteilungsfragen“.

Germany is generating substantial export surpluses – but the profits are being squandered abroad. The solution? Investing in Germany.

Since the year 2000, every German has lost an average of €7,500 euros in savings abroad.

How could that be? Didn’t our country just post a record surplus, exporting significantly more to its foreign partners than it is importing? Yes, … [continue reading]

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Statement on the meeting of the Council of the European Central Bank

ECB President Draghi has clearly signaled a continuation of its current course of monetary policy. The rising inflation trend is a positive, welcome development for everyone. Especially Germany should welcome the positive trend in inflation. The sooner the ECB can achieve its price stability objective of 2%, the sooner the ECB can end its expansionary monetary policy stance. … [continue reading]

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Supplement: Statement on the result of the Brexit referendum

An important aspect, that has been widely ignored in the debate about the consequences of a Brexit, is the impact on ECB monetary policy. Lower oil prices and a weaker economy in the euro zone and in Germany are likely to increase deflationary pressures further. As a consequence, the ECB is likely to extend its expansionary monetary policy path further into the future. The Brexit will most likely imply a longer period of zero interest rates for the euro area.… [continue reading]

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Statement on the Federal Constitutional Court’s decision regarding the European Central Bank’s OMT program

The German constitutional court took a wise decision, but which is effectively a reversal of its earlier decision of January 2014. The court now accepts the authority and the decision by the European Court of Justice on the ECB’s OMT program of 2015. The backing down of the German constitutional court is a smart move, as it would inevitably have lost the battle against the European Court of Justice on issues of European law. … [continue reading]

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Statement on the Decision of ECB’s Governing Council 06/02/2016

The ECB has signaled that low inflation is likely to persist even longer than previously feared. The new projections by the ECB have increased the probability of an extension of QE beyond March 2017. The ECB is putting great hopes into its new liquidity program for banks in order to improve credit to the private sector, strengthen the economy and thereby raise the inflation rate.… [continue reading]

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