The ECB is never going to please everyone as it attempts to deliver policies to help meet its price stability mandate. With the German political focus slowly turning to the 2017 election we are back to discussing the issue of how the ECB is negatively impacting German savings/pensions.
Beyond the meeting this week between ECB President Draghi with FinMin Schuable it is likely that the ECB more broadly will use speeches and the next post-meeting press conference to expand on the idea that things would be worse off for savers/pensioners if the ECB fails to meet its mandate.
All of a sudden the actions of the ECB are now seen as a major political risk ahead of the German election in 2017.
At the heart of these worries is concern over the impact on German savings/pensions which politicians from Merkel’s CDU/CSU bloc believe is behind the success of the Alternative für Deutschland (AfD) in last month’s regional elections. What worries the governing coalition is the prospect that the ECB could eventually resort to a helicopter money strategy, something that could increase support for the AfD. The fact that Draghi has been unwilling to shoot the idea of helicopter money down completely has worried German politicians.
Clearly there is an attempt to kill any discussion over helicopter money but by doing so German politicians are interfering with the independence of the ECB.
It was only two–three years ago that the ECB was playing down the need to follow the Fed/BoE down the road of QE but the facts changed and they may do so again such that deeper rate cuts, more QE and even helicopter money start to look more appealing.
Draghi this week is unlikely to want to shoot down the idea of helicopter money completely but will likely look to tone down the need to take such action based on confidence over existing policies.
The ECB will use speeches to reiterate that it remains willing to deliver further easing to deal with the threat of deflation reminding all of the experience of Japan that deflation would hurt savers/pensioners more.
The German government is likely well aware that it will have a limited impact on ECB policy but it can use this to highlight that there is very little that anyone can do (including the AfD). Although it does provide the government with the chance to say that it is listening to the electorate and use some of the fiscal flexibility afforded to it to justify more generous pensions.
