German attitudes toward the euro

Here’s the Financial Times:

German media habitually refer to negative interest rates as penalty rates — a fine levied by the ECB to punish German savers. Tagesthemen, Germany’s top evening news programme, casually reported last week that the ECB was planning to use German taxpayers’ money to fund its asset purchase programme. Die Welt refers to the “expropriation” of the German saver — a phrase with alarming historical connotations. Even liberal newspapers, like the weekly Die Zeit, accept the view that the ECB is the cause of low interest rates.

While a number of factors have led to low eurozone interest rates, by far the most important is low rates of growth in NGDP.  Eurozone NGDP growth has averaged only 1.8% over the past 11 years.   Prospects going forward are not much better.

Germany is the country most responsible for this state of affairs, as it demanded that the ECB be set up as a hawkish central bank, and it has consistently lobbied for a tight money policy.

And yet I don’t blame the German public for this confusion, rather the economics profession is to blame.  For years, economists have been talking about easy and tight money in terms of interest rates.  Is it any surprise that the German public has come to believe that low interest rates in the eurozone represent an easy money policy by the ECB?

Going forward, this false belief about interest rates is likely to lead to a great deal of friction within the eurozone.  It will also lead to bad policies.  There is a danger of a feedback loop where bad policy leads to misconceptions about how things work, which leads to even worse policies.  Thus the eurozone might push for a coordinated fiscal stimulus, which would likely be ineffective (as it was ineffective in Japan during the 1990s and 2000s.)

Ideas have consequences.



13 Responses to “German attitudes toward the euro”

  1. Gravatar of Neon__Wolf Neon__Wolf
    4. August 2019 at 08:50

    The reason is the EU expanding the quantity of loans ex nihilo at a faster rate than the US that explains their ‘easy money’.

    NGDP is an after effect in time, not a cause for what happens prior.

    Their NGDP would be stalling because of a reduction in the EU exploitation of America.

  2. Gravatar of Neon__Wolf Neon__Wolf
    4. August 2019 at 08:51

    Fake news is the enemy of the people.

  3. Gravatar of Will Will
    4. August 2019 at 12:07

    I think the German position can be argued as sensible with respect to the ECB inflation mandate. Both German and Eurozone HICP inflation poked above 2% late last year and have averaged around 1.6% since 2017, which might constitute the “medium term.”

    This of course just serves to highlight the dubious merit of their target, not to mention how mushy wording like “medium term” can be used to rationalize all sorts of policies ad hoc.

  4. Gravatar of Neon__Wolf Neon__Wolf
    4. August 2019 at 12:13

    One of the El Paso shooters was a Registered Democrat.

    Blog author per Operation Mockingbird programming: “Since Russia Russia Russia didn’t work, since Racist Racist Racist POTUS didn’t work….ATTACK TRUMP SUPPORTERS AS WHITE NATIONALISTS!”

    So predictable!

  5. Gravatar of Neon__Wolf Neon__Wolf
    4. August 2019 at 12:54

    I will bet $100 that the blog author is paying a group of the same people to post flattering comments about him, for years on end he’s been doing this.

    The same names are saying the exact same syntax for years on end.

    No evolution at all after years of discourse?

    Who are these people?

    I recall seeing a warning shot from some other poster, to the blog author.

    Controlling the narrative has been claiming academics at corrupt city universities/colleges?

  6. Gravatar of Neon__Wolf Neon__Wolf
    4. August 2019 at 12:56

    Warning post = Like it was a call to censor ‘dumb’ people.

  7. Gravatar of Neon__Wolf Neon__Wolf
    4. August 2019 at 13:04

    Bless their hearts.

    And formal farewell for me.

  8. Gravatar of Benjamin Cole Benjamin Cole
    4. August 2019 at 15:30

    For decades, the bulk of the macreconomics profession and the financial media have told the public that low interest rates are easy money and that much higher inflation is pending.

    I guess it can be said that the financial media and many luminaries within the macroeconomics profession predicted higher inflation due to reckless fiscal spending and easy money.

    Instead the developed nations are very close to or in deflation and sovereign bonds offer negative interest.

    Voters must be mystified… what should they believe?

  9. Gravatar of ssumner ssumner
    4. August 2019 at 15:37

    Will, Core inflation is a better predictor of future inflation. It’s averaged less than 1.2% since 2010, and there is no sign of a puck up. If people expected 1.6% to 1.8% inflation going forward, then bond yield would likely be higher.

  10. Gravatar of Derrick Derrick
    5. August 2019 at 07:05

    Scott – if long term interest rates are low in the EU, wouldn’t that suggest that there IS “easy money” but that no one wants it(i.e. demand for money is low?).

  11. Gravatar of ssumner ssumner
    5. August 2019 at 08:36

    Derrick, No, interest rates don’t measure the stance of monetary policy, you need to look at NGDP growth.

  12. Gravatar of Derrick Derrick
    5. August 2019 at 08:44

    Scott – maybe I’m not asking this the right way; What is the monetary policy of the ECB if not to keep rates low and spur investment?

    Second part – Are you saying the discrepancy between the ECB monetary policy and the public’s behavior(excessive savings) can be explained by the fact the public thinks that easy money is an indicator of reduced growth and a recessionary signal?

  13. Gravatar of ssumner ssumner
    5. August 2019 at 15:15

    Derrick, Look at NGDP growth, policy has been quite tight. The Eurozone would benefit from a 4% NGDP growth target, level targeting. Then authorize the ECB to “do whatever it takes”. Buy as much as is needed.

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