Benoît Coeuré: Interview in Die Zeit
Interview with Mr Benoît Coeuré, Member of the Executive Board of the European Central
Bank, in Die Zeit, conducted by Mr Mark Schieritz and published on 9 December 2013.
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Mr Coeuré, do you know what the interest rate on savings accounts in Germany is?
Very low, probably close to 0%.
That's correct. Some banks pay 0.25% or even less. Can you relate to savers in
Germany being annoyed that the European Central Bank (ECB) is making them foot
the bill for the crisis?
Rates are very low because the euro area economy is weak. Take the example of low
long-term interest rates on German government bonds, which are important for life insurance
contracts and pensions.
Why exactly is the weak economy responsible for low rates?
If growth is weak, there are few profitable investment opportunities. As savings need to be
invested in order to achieve returns, this means that returns are low. Low market rates also,
however, create the conditions for new growth and this will also boost future returns on
savings.
So you are saying that German savers benefit from the ECB's low rates?
My message is: it is important to differentiate between long-term rates for savers and the
policy rate of the ECB. Long-term rates are low because the economy is weak. In such
circumstances, the ECB has to set its policy rate in such a way as to ensure price stability.
Thereby we support the economy and create the conditions for profitable investment
opportunities - and this is also of benefit to German savers.
So what would you say to Germans who are worried about their retirement provision?
I would tell them that the best way to improve the return on their savings is for the crisis to be
solved as quickly as possible. This means that the economic reforms have to be
implemented in the stressed countries, but it also means that we have to complete the
measures designed to make the euro area as a whole safer. We need, above all, a
functioning banking union so that German government bonds are not the only safe haven
assets in the euro area anymore.
If Germany still had the Deutsche Mark, interest rates would be higher.
I don't want to speculate on hypothetical issues. Our currency is the euro. But look at
Switzerland: the country has its own currency and interest rates are extremely low
nevertheless, namely because investors consider it a safe haven like Germany.
You mentioned price stability. Inflation is currently very low. Where's the harm in that?
It is, above all, a question of confidence. The ECB is committed to maintaining price stability,
by which we mean keeping inflation below, but close to, 2% - and we have achieved this
objective. Average inflation since the introduction of the euro is 2.03%. This has contributed
to economic stability in Europe. If we were to miss our objective, people would start to
question our commitment. That also holds if we were to tolerate inflation rates that were too
low. We cannot risk such a loss of confidence.
The main reason for the current low level of inflation is price and cost adjustment in
the crisis countries, thereby enabling these countries to become more competitive.
It is good that the economies needing to regain competitiveness adjust. But the adjustment is
much easier if inflation in the euro area as a whole stands at 2%, rather than, say, 1%.
Why?
We know from experience that, at least in Europe, it is very difficult to cut nominal wages. If
prices are rising, you get the desired effect - the cost of labour declines in real terms - just
by holding nominal wages constant. This is why there is no major central bank in the world
that seeks to eliminate inflation completely. Inflation should be at a low, but positive level.
The inflation rate in the euro area is currently at 0.9%. If we take you at your word, the
ECB is in fact not doing its job.
It is true that, as a result of the weak economy, there is little scope for prices to increase. But
we expect the rate of inflation to come back to 2% over the medium term.
According to your staff projections, inflation will be below the target until 2015. What
do you mean by medium term?
We are not giving a more precise time frame, but we are certainly not talking about a decade
or a generation.
If the countries in the south have lower inflation rates and the ECB wants to keep
overall inflation at 2%, then that means logically that Germany has to accept higher
inflation.
It is not a goal of our policy to artificially increase inflation in Germany. But if the German
economy keeps doing well, and wages increase, inflation will naturally also increase
somewhat. That is a result of market decisions. What is important for us is that average
inflation in the euro area as a whole returns to our objective.
And what if it does not?
We cut interest rates last month because we came to the conclusion that inflation would stay
below target for too long. Looking ahead, if we come to the conclusion that this remains the
case, we would have to act again. This is not our scenario at this stage, however. We are
confident that inflation will gradually come back to 2%, mainly because the euro area
economy will come out of recession. But of course we have to monitor the situation very
carefully. I do not want to rule out further steps.
Interest rates are already close to zero. What could you do?
There are a number of things we could do. We could cut interest rates again, by, say, moving
the deposit rate into negative territory, and we could provide additional liquidity to the
banking sector. Which of these options - if any - we will use depends on the economic
developments. We could also combine these measures.
As for the crisis in Europe, would you say that the worst is over?
I would say that the worst of the financial crisis in a narrow sense is over. The main task of
European authorities this year and last year was to stabilise financial markets. This has been
largely successful: markets are much calmer and have more confidence in European
recovery now. The main task next year will be to get the economy going.
Some people in Germany say that France, your home country, is the biggest risk for
the Monetary Union.
I would certainly not call France a risk in terms of financial stability. The French financial and
banking system is resilient. There is currently no danger whatsoever that the country may
lose access to financial markets. The problem is that growth could remain weak if reforms
are not taken forward. Companies have to increase their competitiveness and the
government has to get the budget under control by cutting public spending.