European Central Bank board member Benoît Cœuré today explained why the ECB embarked on its latest, massive quantitative easing program: With Europe suffering weak and non-existent growth, and with deflation already a reality in some countries, he said: “We had to do something. That became pretty clear. The only discussion was how to do it.”
The ECB approved a €60 billion bond purchase program for each month until the end of September 2016.
But then he added something that, in some quarters, might be interpreted as a criticism of Germany.
“We all have our job to do. Others have to do their part. We have done our part. We can make it cheaper to invest but others have to want to invest. That’s the job of government.”
He didn’t name a specific government, of course. But there is one European government that has balked at doing “their part” of the ECB plan: Germany.
German leader Angela Merkel has been against further stimulus packages from the ECB because she believes it lets countries like Greece, Italy and Spain off the hook for failing to get their act together and balance their budgets. (Indeed, the Greeks have already stopped paying taxes again in the hopes that a new government will trash the country’s existing debt agreements.)
The QE package shows that the central bank believes stimulating economic growth is a bigger priority than forcing fiscal discipline in Southern Europe. But the package will only work if banks and countries use the new ECB money to invest in new companies, new infrastructure and other job-creating work that will increase aggregate economic demand.
Germany has the strongest economy in Europe right now, and it could comfortably do the rest of the continent (and itself) a favour if it used some of that ECB money on some big new infrastructure projects (roads, bridges, high-speed rail and so on). Those projects would grow the economy in the short term, creating jobs, and increasing demand for supplies and services across Europe. They would also help Germany modernise itself. Half of all autobahn bridges are in need of repair, Der Spiegel reported recently, in an article titled “A nation slowly crumbles.”
But to do that, Germany would also need to run some deficits. Most people believe those deficits would be well within comfortable margins for Germany’s GDP. Generally, deficits aren’t a problem if your country is growing its way out of them. The problem is that culturally the Germans are savers not spenders. They hate debt. And that’s why they hate the ECB’s QE programme.
As such, Coeure’s statement, at the World Economic Forum in Davos, Switzerland, sounds very much as if he’s talking about Merkel and Germany.