“The ECB is well-advised to keep all exit options open”

7 September 2017, Prof. Marcel Fratzscher, Ph.D.

Marcel Fratzscher, president of the German Institute for Economic Research (DIW Berlin), comments the latest ECB council meeting as follows:

“The European Central Bank (ECB) stays true to its cautious approach of a gradual exit from its expansionary monetary policy stance. It is wise for the ECB not to commit to a specific timetable for its next policy steps. The risks to the euro area and the global economy are still substantial - geopolitical conflicts and protectionism are on the rise again. The euro area's banking system is also still facing many problems. At 1.5 percent, the projected inflation rate for 2019 would allow the ECB to just marginally fufill its price stability mandate. The ECB has to keep its exit options open in order to be able to react flexibly. The toughest challenge will be for the ECB to contain market volatility, which will arise from the normalization of its policy stance. I expect a fairly quick reduction of ECB asset purchases in 2018, together with a revision of the negative deposit rate. I don't expect policy rates to be hiked before 2019. ”

“The German constitutional court should have rejected the lawsuits against the ECB”

15 August 2017, Prof. Marcel Fratzscher, Ph.D.

Marcel Fratzscher, president of the German institute for economic research, on today's decision of the German constitutional court concerning the ECB:

“The decision of the German constitutional court concerning the lawsuit against ECB QE program is a false compromise. The constitutional court signals that it considers the ECB QE program as a violation of European law and to constitute monetary financing. Yet the constitutional court is not willing to take a decision itself at this stage, but rather asks the European court of justice (ECJ) for "advice". I expect that the ECJ will again support the ECB, as it did with the ECB's OMT program, but there is no guarantee the German constitutional court will heed this advice. The new lawsuits against the ECB QE program have even fewer merits than the past lawsuits against the OMT program. The wise and right decision by the German constitutional court would have been to reject the lawsuits against the ECB. The purchase of government bonds is a not unusual monetary policy instrument in times of crisis in order to lower interest rates and to be able to meet the price stability mandate. The ECB did not act in an unusual fashion but simply did what most western central banks did during the past 10 years. My concern is that these lawsuits against the ECB and also the past OMT lawsuit at the constitutional court could damage the credibility of the ECB in Germany.”

“The ECB keeps its options open”

20 July 2017, Prof. Marcel Fratzscher, Ph.D.

Statement from 20 July 2017

“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 communication in recent weeks shows that financial markets are too dependent on low interest rates and central bank liquidity. A first rise in interest rates is unlikely to occur before 2019. The ECB is too far away from meeting its price stability mandate to allow an early exit. My main concern are the anchoring of inflation expectations at too low a level and the persistence of core inflation at around one percent. Concerns about an overheating of the German economy are exaggerated and wrong. The high degree of underemployment and the low wage growth underline that the German economy still has a significant unused potential for raising production. Growth in the euro area is encouraging although the euro area economy is still far below potential. Unemployment is still too high and risks in the banking sector are underestimated as the problems in Italy have shown in recent weeks. ”

“ECB takes an important step in the right direction”

8 June 2017, Prof. Marcel Fratzscher, Ph.D.

DIW President Marcel Fratzscher on today's ECB Governinmg Council's decisions:

“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 damage confidence, so that companies and investors can plan for the long-term. The ECB will have to pursue a policy of a gradual and cautious exit in order to avoid unnecessary market volatility. The economic recovery of the euro area is on a promising path. The cautious exit is appropriate as the ECB is still not sufficiently fulfilling its price stability mandate. Especially core inflation, which is stubbornly stuck at below 1%, prevents the ECB from a premature monetary policy exit. Investment and wage growth in the euro area, and also in Germany, are still too weak to ensure a sustainable recovery. ”

“The ECB is right to stick to its present course”

27 April 2017, Prof. Marcel Fratzscher, Ph.D.

Marcel Fratzscher, president of the German institute for economic research, on today's meeting of the ECB council:

“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 still too weak. The risks of a premature exit are still higher than the risks of a delayed exit. The question is not whether the ECB will end its purchase program before December 2017, but rather how quickly it can reduce its purchases next year. I am concerned about the ECB becoming instrumentalized by German politicians in the upcoming elections in order to stimulate an anti-European sentiment and to blame the ECB for domestic policy mistakes. It is wrong and detrimental of politicians to blame the ECB for Germany's excessive current account surplus.”