Statements

“Euro area reform deal is a disappointing compromise”

4 December 2018, Prof. Marcel Fratzscher, Ph.D.

EU finance ministers have struck a euro area reform deal. Marcel Fratzscher, President of the German Institute for Economic Research (DIW Berlin), comments:

“The euro area reform deal is a disappointing compromise. It does not advance Europe; rather, this deal reveals that apparently, another serious crisis must occur before governments will abandon their national egotisms. The lowest common denominator in the negotiations was so low that little is likely to change. The compromise regarding the banking union is so vague I doubt it will be realistic to implement it soon. Agreements on the capital market union and to advance integration in the internal market for services are completely lacking in this deal. There is no macroeconomic stabilization tool to help struggling countries avoid a recession. Additionally, on the one hand, fundamental fiscal policy reforms to bring about debt reduction are lacking. On the other, governments are missing the leeway necessary to combat the crisis. Both Germany and France are on the losing end of this compromise. These reforms neither reduce nor efficiently share risks in Europe. I fear the reforms will not promote growth and stability in Europe; instead, countries will once again be left to their own devices. This will not halt the populism and nationalism growing in Europe.”

“ECB announcement is bold but the right thing to do”

14 June 2018, Prof. Marcel Fratzscher, Ph.D.

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

“The ECB is sending a clear signal that it will exit its QE program by the end of this year. The ECB’s announcement is courageous as risks to the euro area outlook have increased significantly in recent months. Yet the announcement is wise as the ECB needs to prepare markets early in order to avoid the Fed’s taper tantrum of a few years ago. Yet the ECB is maintaining enough flexibility to react to risks, should they materialize. Unfortunately, it is still too early for the ECB to make a full commitment to an exit from its expansionary monetary policy stance.”

“ECB should not pre-commit itself to a particular policy path”

26 April 2018, Prof. Marcel Fratzscher, Ph.D.

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

“The rising global uncertainty is now making it much harder for the European Central Bank to identify the right timing and speed for exiting its expansionary monetary policy stance. I still expect the ECB to end its QE program by the end of 2018, but the ECB will need to change its communication strategy. In order to remain flexible the ECB should not pre-commit itself to a particular policy path. This will fuel German objections, but it is important for the ECB in order to succeed with a smooth and gradual policy exit. A positive development is the stronger than expected rise in wage growth in Germany, which will raise inflation in Germany and therefore also in the euro area. This will make it easier for the ECB to achieve its price stability mandate and strengthen it in its exit decision. Yet there is no serious concern about an overheating economy or excessive inflation in Germany.”

“European Central Bank has to keep all its options open”

8 March 2018, 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 ECB is keeping its course and following its expansionary monetary policy stance. There had been expectations in Germany that the ECB would promise to end its purchase program in September, but these have been disappointed. The ECB has to keep its options open. The recent turmoil in financial markets, the stronger euro and disappointingly weak inflation in the euro area don’t bode well for a swift end of the purchase program. Despite the change in forward guidance, I now see a higher probability that the purchase program will be extended beyond September, probably at least until the end of 2018. I expect the ECB will want to keep a maximum of flexibility and that it will make its decision about the exit only in the summer.”

“ECB has to strike delicate balance”

25 January 2018, 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 ECB has to strike a delicate balance between preparing markets for an exit from QE and keeping its options open to extend its QE program further, if need be. The most difficult challenge for the ECB is that it is still not sufficiently fulfilling its price stability mandate despite a stronger than expected euro area recovery. The stronger Euro, which is pushing down inflation, does not make life any easier for the ECB. After today’s press conference, an exit from the bond purchase program in October this year has not become any likelier. And even if it should end up being the case, one still should not make the mistake of expecting a timely rise in policy rates. I expect the first rise in policy interest rates to materialize at the end of 2019. ”

“ECB is acting wisely by resisting pressure for a faster exit from QE ”

14 December 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 ECB is acting wisely by resisting pressure for a faster exit from QE. Continuity and reliability are two important elements of the ECB’s policy stance to avoid a taper tantrum and excessive market volatility. I am confident that the economic recovery of the euro area will allow the ECB to end its QE program in September 2018. But it is an illusion to expect a fast rise in interest rates after the end of QE. The low interest rate environment is likely to persist for several more years. Low core inflation and the vulnerability of the banking system remain two key risks for the ECB. The ECB’s new projections indicate that the ECB will meet its inflation objective again only in 2020. Concerns in Germany about an overheating of the economy and excessive inflationary are unfounded. Inflation even in Germany will remain well below the ECB’s 2% inflation objective. ”

“The ECB can only tighten its monetary policy gradually”

26 October 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 ECB has chosen a gradual and cautious exit from its expansionary monetary policy stance. The decision gives the ECB a maximum of flexibility for exiting QE. I expect the ECB to terminate its QE program after September 2018 and to raise rates for the first time in 2019 at the earliest. The ECB can tighten policy only gradually as it is only slowly approaching its price stability mandate. The ECB has to maintain a high degree of flexibility in managing the exit from its expansionary monetary policy stance as risks to the economy and financial markets remain substantial. Geopolitical crises, protectionism, Brexit and the weakness of many banks worldwide could threaten the economic recovery in Europe. We have reached a monetary turning point, but this does not imply a fast normalization of interest rates. The monetary policy of ECB is one of the most important reasons for the economic recovery in Europe and Germany’s strong economy. Without low interest rates, the new German government would not have the fiscal surpluses it obviously plans to distribute to its citizens via tax cuts.”

“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.”