There is no single German position on monetary policy in the eurozone.
While the German nominee for the European Central Bank (ECB) executive board Isabel Schnabel favours expansionary policy, Bundesbank President Jens Weidmann sticks to a traditional position of budget surpluses.
On Friday, German economist Isabel Schnabel that is expected to join the European Central Bank’s board in January argued that the eurozone economy depends on monetary policy assistance, including negative rates and bond purchases.
“Given lower inflationary pressure, these decisions can be justified by current inflation data as well as the outlook for inflation over the medium term, which is not yet converging to the objective of below, but close to, 2%,” Schnabel said.
The ECB announcement of the second wave of quantitative easing in September triggered a German and Dutch pushback, culminating with the resignation of German board representative Sabine Lautenschlaeger.
That resignation was becoming something of a tradition. Lautenschlaeger was the third consecutive German board member to resign. Juergen Stark, resigned in 2011 objecting to the original bond-buying program and Joerg Asmussen quit to become deputy labour minister in the German government. The latest member of the board is not aligned to Weidmann’s position.
Bundesbank President Jens Weidmann opposed the second wave of quantitative easing program, as he had opposed the first. Last Thursday, Weidmann reiterated his traditional criticism that quantitative easing is fueling property bubbles, estimating that German house is 15-30% overvalued.
Last week Weidmann took a second step away from the consensus, opposing Christine Lagarde’s call for the ECB to play a role in fighting climate change. Weidmann argued that it was the role of the government to assume environmental policy. However, he did concede that the ECB had to incorporate climate change into its risk management models as, for example, extreme weather events could increase growth and inflation volatility.
The German central banker seems out of step with Germany’s industrial lobby. Germany’s manufacturing output will drop by 4% in 2021, according to German business lobby projections.
“After six consecutive years of growth, Germany’s industrial sector is stuck in recession since the third quarter of 2018,” BDI Managing Director Joachim Lang said two weeks ago, calling on the government to invest more, leaving behind a long-held zero-deficit policy. The BDI business lobby is calling on the government to invest €17bn in digital and transportation infrastructure, which corresponds to 0,5% of GDP, on the top of €43bn earmarked for public investments in 2020.