When Germany had its own currency, the mark, Germans used to joke that they might not believe in God but they sure believed in the mighty Bundesbank – their central bank.
In the late 1990s, Germany supported the creation of the European Central Bank, the custodian of the euro that would go into circulation in 2002. The ECB, after all, was merely the Bundesbank in larger guise, staffed with stern German bankers. As if to prove the point, the ECB's head office was placed in Frankfurt, and its first president, Willem Duisenberg, while Dutch, was endorsed by the Germans because of their admiration for his cautious stance and inflation-fighting focus.
In 2011, when Italy's Mario Draghi became ECB president, replacing France's Jean-Claude Trichet, Germans were telling a new joke: When the pope is German (Benedict XVI is from Bavaria) and the central banker is Italian, you know something is wrong in Europe.
Germans warmed up somewhat to Mr. Draghi and his largely effective firefighting campaign, which has kept the euro intact against all odds. Now they're turning on him, challenging the ECB's cherished independence. The Bundesbank itself is not at fault; while it may not have approved of all of the ECB's unconventional crisis-busting methods, it knows the ECB is built on independence and transparency and that any efforts to undermine those principals, if successful, would destroy the ECB's credibility and possibly lead to monetary and economic disaster in the 19 European Union countries that share the euro.
But Germany's finance ministry and some of the country's top politicians are not holding back. They are critical of the ECB's interest-rate policy, which has pushed the prime rate to zero and the deposit rate – the rate charged to banks who park overnight money at the ECB – into negative territory. In Germany, a nation of savers, this is considered cruel and unusual punishment.
Last week, Wolfgang Schaeuble, the German attack dog finance minister, went so far as to blame, in part, the ECB's money-for-nothing polices on the rise of Alternative for Germany, the right-wing, Euroskeptic, anti-immigrant party that did well in last month's regional elections. "I said to Mario Draghi … be very proud. You can attribute 50 per cent of the results of a party that seems to be new and successful in Germany to the design of this policy," he told an audience, according to Dow Jones.
He has also said the freebie money policy could create financial bubbles.
The irony is that it is Germany itself that can take some of the blame for the ECB policies that drove interest rates into the basement. What German critics of the ECB also fail to realize is that the ECB exists to design policies for the euro zone as a whole, not just one country. What is good for Germany is not necessarily good for France, Italy, Spain and Greece.
To be sure, the ECB is not above criticism. Under Mr. Trichet, who was president from 2003 to 2011, there was no shortage of blunders. One biggie came in mid-2008, just before the Lehman Brothers collapse, when the ECB raised interest rates. It did so twice again in 2011, when it somehow convinced itself that the European recovery was in place and that it was time to worry about inflation. The hikes were destructive.
Mr. Draghi landed at the ECB in late 2011 with a mission to save the euro and, later, prevent deflation – falling prices.
The first part of Mr. Draghi's mission was a success, thanks, in part, to the pledge to buy the sovereign bonds of any country in danger of getting shut out of the debt markets. The second part has not been a success. The deflation threat is alive and well, and Mr. Draghi's excuse – that plummeting energy prices are largely to blame – is wearing thin. The ECB's slow response can also take a lot of the blame. It should have dropped rates and launched quantitative easing far earlier. The U.S. Federal Reserve tackled the deflation threat more effectively than the ECB.
Blaming the ECB for wrecking German savings plans refuses to go away. Quoted in Spiegel Online, Bavarian finance minister Markus Soder recently said: "The zero interest [rate] policy is an attack on the assets of millions of Germans who have placed their money in savings accounts and life insurance policies."
The German critics conveniently forget three things. The first is that they wholeheartedly backed the creation of an independent central bank for the euro zone. Urging it to scrap policies designed for the greater good is nonsensical. The euro zone economy is still too fragile to absorb interest-rate hikes.
The second is that Germany's passion for austerity at home and abroad, especially in the euro zone's Mediterranean countries, put downward pressure on prices. The third is that Germany itself is guilty of saving too much, and investing too little, which has delayed the euro zone recovery and no doubt added to the deflation scare.
Germany's criticism of the ECB might be a political diversion, a convenient scapegoat for the zero-interest policy that is hurting savers (that is, voters). The more productive response would be to help design a fiscal policy to get the euro zone back on a growth track instead of leaving the heavy lifting to the ECB.