Schleweis: “A more expansionary monetary policy will do more harm than good”

“A more expansionary monetary policy will do more harm than good. The negative effects of this policy now outweigh the positive effects; at the same time, the positive effects have worn out", said Helmut Schleweis, President of the German Savings Banks Association (DSGV), in assessing today’s decisions of the European Central Bank (ECB).

Mr. Schleweis went on to say that the measures adopted would not contribute to the development of the real economy or stimulate prices. Against the background of political uncertainties in the world, neither financing nor liquidity were the causes of the economic slowdown. Companies would therefore not scale up their investments if the market was flooded with more liquidity. What was needed now, he added, was action in areas such as foreign and security policy, economic policy and trade policy. If any stakeholders were to benefit, it would once again be the capital markets, enjoying monetary support as a result of the set of measures adopted today. However, this should not be the central bank’s primary objective, said Schleweis.

The revitalisation of the bond purchasing programme with new net purchases will continue to exacerbate the mingling of financial policy and monetary policy and will take the ECB yet further away from its mandate. Within the framework of its bond purchasing programme, the ECB already holds one-third of the European government bonds in its portfolio. As a result, the investment opportunities for other market players are shrinking more and more.

The DSGV President took a more positive view of the introduction of graduated interest rates. “While this is a step in the right direction, it will only somewhat cushion the direct impact of the negative interest rates. However, the indirect burdens of the expansionary monetary policy and the repercussions for the economy and for society as a whole– as well as for credit institutions – are much heavier. Today’s set of measures will further increase these burdens.”

The main message of today’s decisions is disastrous: The business community and society as a whole in the euro area will need to be prepared to deal with even lower negative interest rates for an even longer period of time.