Ladies and gentlemen,
What I'd like to talk about today is how the European Central Bank's monetary policy has responded, and continues to respond, to the stormy times we have been experiencing in the euro area and in Germany for more than eight years.
On the ECB's mandate and independence
In order to penetrate the depths of monetary policy, it is important to once again remind ourselves of the ECB's role and what it needs in order to fulfil its mandate. The ECB's task is to keep the value of money stable in the medium and long term. Our Governing Council has set itself the objective of keeping inflation in the euro area just under 2%. The ECB must therefore prevent both excessively high inflation and excessively low inflation or even deflation. But I will come back to that point later on.
To achieve this, the ECB needs to be independent; also independent from political influence. The independence of central banks is a relatively new, but now undisputed, achievement. The Deutsche Bundesbank was the trailblazer in this regard: since 1957 it has been the very model of an independent central bank. Since the 1990s most industrialised countries have adopted this model in one form or another. Indeed, the ECB itself was also modelled on the Bundesbank.
To enable a central bank to fulfil its mandate of ensuring price stability, it uses monetary policy instruments in a way that is designed to have the best possible impact on price developments. This cannot happen without side-effects. Effective monetary policy has also always had unavoidable distributional effects. A change in key interest rates, for example, shifts wealth between savers and borrowers: savers get lower interest rates on their deposits with the bank; borrowers can borrow at lower rates and use the borrowed money to invest in their own business. In addition to these direct effects, there are also indirect effects on economic activity and, consequently, on earnings and income from investments. This reallocation concerns not only individuals and generations, but also countries. It is therefore understandable that each group should try to push monetary policy in a direction favourable to them.
The reasons for the low interest rate policy
Let me be clear straight away: low interest rates are not something that I am enthusiastic about not least because of the associated risks and side-effects. However, the low interest rate at present is both necessary and justified. I understand the concerns of German savers, myself included, who view the yield on their savings book with very little enthusiasm. Higher interest rates would permanently stall economic recovery, and bring about lasting low inflation, a persistent economic slowdown and rising unemployment and this would curb the ability to save even more extensively. Moreover, interest on savings deposits also depends on the long-term economic outlook. And that is determined by the economic conditions and government policies in the euro area, and not so much by monetary policy.
The low key ECB interest rates reflect the persistently low inflation in the euro area, and also in Germany. The inflation rate in the euro area since mid-2013 has been below 1%, often well below 1%. To give you more precise figures: in October, inflation in the euro area was at 0.1%, and at 0.2% in Germany. That is significantly lower than our target of below, but close to, 2%. Since the beginning of this year, inflation has hovered around zero. This is certainly, in part, due to falling energy prices, which, incidentally, are good for economic growth and can lead us back to rising prices. However, even if the inflation rate is adjusted for the highly volatile energy prices, it has still been around 1% since autumn 2014, including in Germany.
When considering monetary stability, I am not one to focus on short-term inflation trends and fluctuations, but rather I take a medium- and long-term perspective. The inflation outlook for the next few years confirms the low price pressure in the euro area. Our inflation forecast from September puts inflation at 1.1% in 2016 and 1.7% in 2017. We are therefore slowly approaching our target – also on account of the low interest rate policy. But we are approaching that target only very slowly. A reversal of the low interest rate policy is therefore not yet warranted – and there is certainly no question of inflation risk.
Moderate inflation lubricates the economy by facilitating adjustments in relative prices and, above all, in wages. Price and wage adjustments are among the most important instruments for companies to improve their competitiveness. Studies show, however, that firms lower their wages only very rarely in absolute terms; instead, they do not increase their employees' pay. In times of normal inflation of about 2%, this works quite well, as Germany showed in the first decade of this millennium. However, when inflation is excessively low competition will not allow wages to soar either and the adjustment process is delayed. Low inflation thus holds back the sometimes necessary adjustment in relative wages and prices. Rigid wage structures, higher unemployment and lower economic growth are the result.
The risks and side-effects of the low interest rate policy
Low interest rates create false incentives since they reduce the pressure on the respective governments to make savings and reforms. And reforms are what the euro area needs. The lower interest burden and the possibility of new borrowing at favourable rates make it easier for the euro area Member States to service their debts. This may lead to a relaxation of reform efforts by governments.
The situation becomes more difficult when it's more than a matter of easing the government's debt burden but if the debt level of government budgets continues to grow during the low interest phase. Then, in the worst case, a point can be reached at which the exit from the expansionary monetary policy becomes a problem that is to say, if the increase in the key rate could lead more or less automatically to a government debt crisis. In such a situation, the central bank might find itself compelled to keep government debt sustainable. Monetary policy would then have been subordinated to budgetary policy and would have lost its freedom of action to maintain price stability.
A second risk and cost factor arising from lower interest rates are possible disincentives and distortions in financial markets, which threaten financial stability. In the low interest rate phase, banks and investors only obtain low margins with their usual business. They are tempted to increase the low returns by building up riskier positions. To that end, they either buy riskier paper or expand their balance sheets. Such an increase in risk appetite can lead to asset price bubbles on the financial markets and excessive borrowing.
All this continues smoothly as long as the interest rates remain low and prices are fuelled by central bank purchases. But an unexpected event can occur at any time, be it a political crisis or surprisingly poor economic data; turbulence on the financial markets are the inevitable outcome. These are all the more intense the more imbalanced and risky the portfolios of investors are. We experienced that before the crisis: for example, in the case of US subprime mortgages. By fuelling the risk appetite of investors, overly expansionary monetary policy can sow the seeds for the next crisis on the financial markets. In a phase of low rates it is therefore particularly important to pay attention to the stability of the financial markets.
This brings me to the third cost factor, the distributional effects of the expansionary monetary policy. In Germany and elsewhere, there are repeated complaints that the low interest rates are at the expense of savers. And it's true that anyone who has his money in his savings book is suffering at present.
But when one talks about the effects of the low interest rate policy, one should not only mention the cost factors. Let us consider some selected side effects, positive ones, that occur. Many home builders directly benefit from the low interest rates even in Bavaria. And also small, medium-sized and large enterprises, of which fortunately there are many in Bavaria, can borrow cheaply to invest, to increase their market share and create employment. And the low interest rate policy also benefits Bavaria indirectly: let's not forget that Bavaria is one of Europe's most successful regions with its internationally oriented economy. More than half of the exports of Bavaria's industry go to the euro area. Therefore, the low interest rates not only stabilise the economy in the euro area, but also ensure Bavaria's exports and thus also Bavarian jobs.
I think we could fill a whole seminar explaining why a large proportion of the German public is so sceptical about this programme. I don't want to do that here, but I would like to put on record that I share the impression of many people both inside and outside of Germany that, with the massive purchase of assets, the ECB has entered into a new era of its existence; in so doing, the ECB has assumed a new form. However, before we get lost in a philosophical discussion about the role of a central bank, let us return to the very real programme of the ECB.
The ECB programme currently foresees the purchase of securities to a value of €60 billion per month until at least September 2016. The purchases in the secondary market primarily consist of government bonds, but also include covered bonds and asset-backed securities. So far the Eurosystem has acquired government bonds to a value of €419 billion, covered bonds to a value of €134 billion and asset-backed securities to a value of €14 billion. There is a direct joint European liability for 20% of the purchased assets. The rest of the risk from the purchased securities falls on the respective national central bank.
With the purchases, the Governing Council aims to clearly signal its determination to achieve its goal of price stability. It wants to put further downward pressure on interest rates in the euro area and expects corporations and private households to make use of the favourable interest rate environment to issue bonds or take up loans. It is hoped that this investment and consumption will stimulate the economy. This should restore the inflation rate to close to 2%.
It is also pointed out that the potential benefits are also accompanied by risks. Because there is no historical comparison for the effects of such a broad programme in the euro area, these risks are, in part, difficult to assess and almost impossible to quantify. The already mentioned side-effects of the low interest rate policy wrong incentives for governments, financial market stability and distribution effects are even more acute in the case of quantitative easing.
Further monetary policy easing?
Like any medicine, the beneficial effects of monetary policy measures decline with continued use, while the undesirable side-effects increase. And over-use can lead to the result that the patient feels well and no longer works on the causes of the illness. In that case, long-term harm cannot be ruled out.
Even though less than a year has passed since the decision to launch the quantitative easing programme, new measures are being considered, such as the expansion of the programme. Although certain successes of the programme are visible in the financial markets (for example, in the form of lower interest rates for long-term borrowing) the hopes of a rapid normalisation of medium-term inflation expectations have not yet been fulfilled.
However, this raises two questions. Are the inflation and economic outlooks so bad that new measures are needed? And how effective can further monetary policy measures be, in particular an expansion of the programme, in the current situation?
For me, it is clear. At the moment I see no grounds for further monetary policy measures, particularly not for an expansion of the purchase programme. For me, nothing has changed with regard to the imbalance between the benefits and risks of such a measure. This applies in particular because our programme is in full swing and, as with any monetary policy measure, it takes time for the effects to appear in the credit conditions for corporations and households.
All of this together is evidence that the euro area is not in a situation in which there is no alternative to further monetary policy easing. With our low interest rate policy, the current scale of the purchase programme and the forward guidance on interest rates, we are already taking sufficient account of the weak economic outlook, including negative structural factors such as demographic trends, public finances and financial sector adjustments. We should give the numerous and, together, powerful monetary policy measures time to take their full effect.
In the discussion, we should also not forget to ask about the reasons for the current weak growth. Subdued investment and you know this better than me is not only due to poor financing conditions. Often, the causes are structural economic conditions and the situation and regulation of the labour market. This is where action is required in order to encourage investment.
A framework for the return to normal monetary policy
Ladies and gentlemen, as I have explained, the ECB responds to the overall economic situation in the euro area. The economy is subject to the usual fluctuations. Monetary policy must, of course, respond appropriately to this. However, the euro area is not only suffering from economic weakness, but also has structural problems that are hampering its economic development. I am speaking about inflexible labour markets, complex tax systems, slow insolvency proceedings, unsustainably financed welfare systems and much more. All of this is like lead boots slowing down our economic recovery.
Monetary policy is largely powerless to deal with structural problems. All that we can do in Frankfurt with regard to structural reforms is to buy valuable time. Because the effect of our measures declines over time, politicians must make use of the time bought by the ECB. Only fundamental reforms will lead to a structural economic recovery in the euro area and thus create the basis for a sustainable economic upturn. When this recovery is foreseeable, it will finally be possible for the ECB to end its expansive monetary policy.
However, on the subject of structural reforms, we should not only focus on far flung horizons, but also look closer to home. Germany should lead by example. As a recent OECD study describes, this has not always been the case recently. Germany too has structural problems which need to be addressed. Examples of these include the lack of sustainable funding of the pension system, inadequate investment in transport infrastructure, and a reform of the tax system, to mention but a few. Even Bavaria should not rest on the laurels of the past, but should maintain the ambition to defend its leading position. Decisive reforms will create the basis for growth and better future prospects in the euro area. Rising investment will increase demand for labour, leading to rising wages and, indirectly, rising prices. This will not only bring an end to the low interest rates that are causing many of us such a headache, but we will again have an economically healthy and strong Europe of which we can all be proud.（完）
第26期：SEC主席Mary Jo White：尽管市场瞬息万变，我们依然保持活力不减