ECB Struggles Mirror EU Power Shifts

Germany has grown more important—and publics have been more attuned to national, not collective, interests.

A recent, seemingly minor criticism of the European Central Bank (ECB) reveals much about the European Union’s future. Central banks, of course, often come in for criticism. People worry over a policy’s adverse economic and financial consequences. Groups push policy to favor their narrow interests. This latest criticism looks like the latter sort, but it carries something more. A group of smaller German banks, called Sparkasse, complained that the ECB’s easy monetary policy will help Europe’s beleaguered periphery only at the expense of German savers. German media picked up the story and, knowing the popularity of the message, broadcast it widely. What the group says is true, of course, at least in a narrow economic and financial sense. Every central-bank policy burdens some for the benefit of others. What makes this criticism significant is how its nationalist tone at once points out: 1) the fundamental lack of integration in the eurozone, and 2) the increase of German influence.

The complaint, as indicated, is technically correct. Easy monetary policies, and the low interest rates that accompany them, help debtors, in this case Europe’s troubled “Club Med,” at the expense of creditors, in this case relatively prosperous Germany and its avid savers. The policy allows the periphery nations to borrow and refinance more cheaply than they might otherwise be able to, while low rates force lenders to accept poorer returns on their assets than what they might otherwise get, a major hardship to retirees living on their savings. Redoubling this sense of inequity are recent ECB statements, especially by its president, Mario Draghi, that designate monetary easing and low-interest rates as an effort to push up inflation. (Recently, the EU’s statistical agency, Eurostat, put the euro area’s overall annual inflation rate at only 0.9 percent.) Efforts to keep up inflation just make low rates more attractive to the debtor by reducing the ongoing real cost of debt service. And they increase the burden on savers by reducing the purchasing power of the already paltry returns on their assets.

Of course, interest groups everywhere try to twist central bank policies to their benefit. Typically, the push and pull divides along class lines. The wealthy want higher rates, to heighten the return on their assets, as well as less expansive monetary policies, to hold back inflation risks and protect the real value of their wealth. Poorer people, because they have fewer assets, see a less clear threat from inflation, and since they tend to be net debtors, they enjoy a benefit from lower interest rates. Sometimes, the interests divide along regional lines. In late-nineteenth and early-twentieth century America, for instance, the predominantly agricultural Midwest and South battled the monied interests in the Northeast over monetary policy. The farmers, mostly debtors, preferred what they called “easy money.” The wealthy urban lenders preferred more monetary restraint and higher rates, which they described as “sound money.” If, in an economic and financial sense, the nationalist twist we’re seeing in Europe is completely analogous to past class and the American regional differences, the politics are radically different.

Draghi, unsurprisingly, chose to ignore the economic and financial components of the Sparkasse complaint and instead chided his critics with the standard line used by EU leadership. Taking exception to the “nationalistic undertone,” he reminded all that people on the Continent are “not German, neither French nor Spaniards nor Italian.” Instead, he told his critics: “We are Europeans, and we are acting for the eurozone as a whole.” But his defense did less to dispel the matter than to focus attention on what has been happening. However much EU officials pretend otherwise, the burdens of this crisis have made it plain that there are still Germans, Spaniards, et cetera, and precious few “Europeans,” in President Draghi’s sense of the term. It has become ever clearer that the EU simply does not speak for a coherent group. The best it has ever been able to do, the best it can do today, is to ask its stronger members to accept disadvantages for the sake of the union, which they will do only to the extent that it suits their longer-term national interests. In this crisis, that has effectively meant German support for the weaker nations of Europe’s periphery.