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Mario Draghi is generally well respected throughout the 18-nation bloc Eurozone. As president of the European Central Bank (ECB) he is tasked with stabilizing the euro through the implementation of monetary policy measures. This is no mean feat. The euro has been hit with a barrage of problems of late, including an inflation rate of just 0.3%, historically low interest rates and stubborn pockets of unemployment in southern Eurozone countries.
To combat the threat of deflation, and to boost the velocity of circulation of money flow through the Eurozone, Mario Draghi recently announced sweeping policy moves. The decisions were not unanimously agreed upon, however. Many Germans are deeply concerned about the latest ECB policy measures which they perceive as overreach, perhaps even illegal.
Germans Angered by Overreach of ECB
The ECB agreed to cut the interest rate by 10 basis points to 0.05% and to initiate a series of quantitative easing policies. It’s clear what the intention is: to flood the Eurozone with money to increase bank lending, initiate asset purchases and make EU exports more attractive to foreigners. Of course it’s also clear that the policy measures are having a marked effect on the euro’s cross-currency exchange rate with the USD, GBP, CAD and other major world currencies.
Draghi wants to target an inflation rate of 2% – which is 1.7% higher than current levels. Deflationary fears are a real concern for all Eurozone countries, but Germany is more concerned that inflationary pressures will result in a flooding of the market with cheap euros. An anti-euro party has emerged – the Alternative – and it’s already poaching many voters in Germany.
Dropping Interest Rates Hurting German Retirees
Germans don’t mind monetary policy measures as much as they despise a blanket introduction of fiscal policy measures in the form of quantitative easing. Many Germans feel that the ECB has strayed from its mandate of enacting monetary policy changes. By reducing interest rates to near zero, Germans planning for retirement have nothing to gain from having their life savings in the bank. Many folks simply are not interested in the stock markets or buying property so this avenue is worthless to them.
Buying bonds of Eurozone countries is seen as illegal to many Germans as it would effectively be financing governments instead of managing the money supply. Asset-backed security purchases are seen in the same light. It is clear that the Germans want countries to be accountable for their performance. They would much rather see structural changes being implemented to comply with EU policy. The Germans do want mass bailouts of poorly performing economies; accountability and compliance are at the heart of the German perspective. Ironically, the European Central Bank is located in Germany, where many say it has the least support.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]