Spiegel suggested that the German finance ministry would go so far as to sue the ECB to prevent this final monetary paradrop in a desperate attempt to stimulate (hyper)inflation:
Were the ECB, as Draghi has indicated it might, to open the monetary policy gates even wider — with, for example, helicopter money — the German finance minister would view it as a breaking point. Such a policy would see the ECB bypass the banking sector and distribute money directly to companies, consumers or states, all of which would stand in violation of the central bank’s own statutes. Should it come to that, sources in the German Finance Ministry say, Berlin would have to consider taking the ECB to court to clarify the limits of its mandate. In other words: the German government and Draghi’s ECB would be adversaries in a public court case.
Such a legal battle between the government and a central bank would be a first in German history. It could lead to a constitutional crisis of unprecedented severity or to currency turbulence — which is why it is extremely improbable that the two sides would allow the conflict to escalate to such a degree.
Just a few hours later Schauble went on the record to deny that the Geran finmin would consider taking legal action if the European Central Bank resorts to “helicopter money” but the damage was already done.
As Reuters follows up today, “almost a month after stoking a divisive debate about how far it should go in pumping money into the flagging euro zone economy, the European Central Bank is trying to soothe relations with Germany after unusually strong criticism from Berlin.”
Late last week, German Finance Minister Wolfgang Schaeuble was reported as blaming the ECB’s cheap-money policy in part for the rise of the country’s right-wing anti-immigration Alternative for Germany (AfD).
The discussion is likely to continue when ECB President Mario Draghi meets Schaeuble this week in Washington at the International Monetary Fund’s spring gathering of central bankers and ministers from around the world.
A storm of protest erupted in thrifty Germany after Draghi last month described the idea of “helicopter money” – sending money directly to citizens – as a “very interesting” – if unexamined – concept.
Late last week, top ECB officials, including the ECB’s chief economist and its vice president, backpedalled, saying the idea was not on the table. But the damage had already been done.
Analysts at German banks, those most impacted by Europe’s trillions in negative yieldings loans, were furious. “The ECB’s policy was already unpopular in Germany and the idea of helicopter money was the straw that broke the camel’s back,” said Joerg Kraemer, an economist with Commerzbank in Frankfurt. “People feel that ideas like this are dangerous.”
Others were likewise livid: “We’ve seen most of the impact of QE (Quantitative Easing) last year and there is little more to come,” said Lars Feld, one of the ‘wise men’ that advise the German government on economic policy.
Instead of lower rates, the German government, which is becoming increasingly concerned with the hostility of its savers and insurance companies, is now calling for higher rates: “Higher interest rates would now be good for the profits of banks and insurers and would stop the emergence of property bubbles, such as the one we might see in Germany.”
On Sunday, a number of German politicians criticized the ECB’s stance, with one minister blaming low interest rates for putting a “gaping hole” in pensions, as rumors of possible legal action over helicopter money swirled.
While one can debate how much of Germany’s public stance is posturing, the tide is clearing turning against Draghi in Europe’s most prosperous and powerful nation. And as Reuters adds, this weekend’s scandal marked a new low in the often fraught relations between the euro zone’s biggest country and the central bank’s Italian chief, who has recently bemoaned what he described as the “nein zu allem” (“no to everything”) approach – a swipe at Germany.
It’s not just Germany who is angry though: the discussion about ever wider boundaries of possible ECB action, distracting from the ECB’s 1.7-trillion-euro-plus money printing scheme, also irritated some euro zone central bank governors, a person familiar with the matter said.
The ECB, which for years has struggled to improve its image with a skeptical German public, declined to comment. But many at the ECB resent what they see as unrelenting criticism from German politicians, journalists and economists, who reject the ever more generous measures the ECB is taking to fire up the slow economy.
“I think this shooting at the institution, especially in this country, is sometimes difficult to swallow,” Peter Praet, the ECB’s chief economist, told a conference of economists last week in Frankfurt.
There seems little prospect, however, of the debate abating ahead of a meeting of the 19 euro zone central bank governors on April 20-21. A spokesman for Schaeuble’s finance ministry described it as a “legitimate discussion”.
Others forecast that the idea of sending money directly to Europeans could shadow such gatherings. “It will be hard to get the idea of helicopter money out of people’s heads,” said a euro zone official.
Finally, for all those skeptics who correctly see this as nothing but a made for primetime TV spectacle meant to show how Germany is willing to oppose the former Goldmanite money printer, here is the punchline: “The criticism in Germany is justified but a little dishonest,” said Commerzbank’s Kraemer.“There is no way Schaeuble would be balancing his books were it not for the ECB’s policy.“