Sabine Lautenschläger: Interview in Der Spiegel
Interview with Ms Sabine Lautenschläger, Member of the Executive Board of the European
Central Bank, in Der Spiegel, conducted by Mr Michael Sauga on 7 January 2015 and
published on 10 January 2015.
* * *
Mario Draghi, the President of the European Central Bank, intends to undertake
largescale purchases of European government bonds in order to counter the rate of
inflation in the euro area. Will you agree to that?
Inflation in the euro area has been below the targeted rate of just under 2% for quite some
time now, and forecasts for the next few months predict little change. That is why it has been,
and continues to be, right and proper for the ECB to discuss appropriate countermeasures.
However, I am currently not convinced by large-scale purchases of government bonds.
Why not?
In monetary policy-making, I regard purchases of government bonds as the last resort. In this
context, the peculiarities of the euro area as a currency area encompassing 19 sovereign
states must be taken into account. There must a threat of exceptional risks materialising, and
there must be reasonable balance between the benefits of, and risks entailed in, such a
programme. I do not believe that to be the case at present. What we should do instead is
wait until the measures that we have put into place only recently can take full effect.
Despite these measures, which include the negative interest rate on deposits and
purchases of securitised private sector credit, December for the first time saw inflation
in the euro area drop to below zero. Many economists are warning of deflation such as
that experienced by the global economy in the 1930s when consumers no longer
wanted to buy anything because they all expected prices to continue to fall. Isn't that
reason enough for decisive intervention?
I don't want to gloss over the situation, but you can't speak of deflation at the moment. What
we are observing is a persistently low inflation rate that is due, among other factors, to the
fact that prices of energy and food have declined significantly. At the moment, however, I
cannot see any signs of consumers expecting steadily falling prices and thus changing their
spending patterns.
The purchases of government bonds are intended not only to raise the rate of
inflation, but also to encourage banks, in particular those in southern Europe, to again
extend more loans to the corporate sector. Can that work?
I have my doubts in that respect. Credit institutions in southern Europe are currently not
suffering from a lack of liquidity. The European Central Bank has ensured that through a
number measures over past months. Rather, many banks are hesitant in extending loans
because they believe that there is too great a risk that debtors will not be able to redeem
them. I do not expect that the ECB purchasing government bonds on a large scale would
change that in a sustained manner. Instead, banks must again be in a position to see that
their borrowers have decent economic prospects.
How could that be brought about?
Above all, national governments could contribute to this goal by implementing effective
structural reforms to improve the competitiveness of industry. If a company is competitive, it
has a future, the risk of default is lower and banks extend loans with lower risk margins.
Draghi's reasoning is different. He wants to boost economic activity by using the
purchase programme to bring interest rates in the crisis countries down still further.
Interest rates are already very low. In Italy and Spain, for instance, the yields on ten-year
government bonds are just below the yield on comparable US bonds. How much more
should yields decline and how large must a programme be to achieve such a decline? In
addition, I am asking myself whether, by forcing yields down further, we would not encourage
governments to increase their debt again, instead of focusing on sustainable budgetary and
economic policies. That would be the exact opposite of what is necessary.
The Federal Reserve System, too, has bought government bonds for trillions of dollars
in recent years - and was successful. Does that not give you reason to rethink?
The comparison with the Fed is misleading because we have a different economic and
political set-up in the euro area. Moreover, the bond purchases undertaken by the Fed were
particularly successful as long as the yields on government bonds were still comparatively
high, i.e. immediately after the major financial crisis in 2008. In Europe, the yields on
government bonds are comparatively low even today.
Doubts similar to yours have also been expressed by Jens Weidmann, President of
the Bundesbank. In the Governing Council, however, there is a majority in favour of
the plans announced by Draghi. Do you not fear that the German representatives at
the ECB are yet again adopting a dangerous minority position?
There is little point, in my view, to speculate about majorities in the Governing Council before
the discussion of the design of a purchase programme has even taken place. Moreover, this
is not about German positions. The only issue that is crucial for me is whether large-scale
government bond purchases are appropriate for our currency area and whether the benefits
are greater than the risks. And I am sceptical about that.