For years the European Central Bank (ECB) ignored a major criticism of its zero interest rate policy. It has now moved away from that, with a new clarity that is surprising. In the meantime, the ECB itself may also find it pointless to deny that its policy is widening the social gap. Council member Isabel Schnabel openly admitted this in a speech at the “Conference on Diversity and Inclusion in Economics, Finance, and Central Banking”. Noteworthy: the speech on the ECB’s homepage was not translated into German.
Verbatim Schnabel said: “A significant part of the euro area population owns no bonds, stocks or real estate, and to the extent that some monetary policy instruments, such as asset purchases, drive up the prices of these assets, there is a risk that monetary policy disproportionately benefits those who are in the upper echelons of wealth distribution. “
A surprising admission. Apparently, the negative consequences of monetary policy in people’s everyday lives are too obvious to be denied any longer. With a key interest rate of zero and a permanent expansion of the money supply, the ECB has on the one hand de facto deprived the many savings account holders of their previous form of asset accumulation, on the other hand it has given property owners and shares excessive benefits, because prices here have skyrocketed, especially in the past six years went. Incidentally, both price categories are not included in the shopping cart and are therefore not included in the official inflation measurement. But the consequences are no less specific: Those who already have assets – in the form of real estate and stocks – are now even richer. On the other hand, those who have to build up their assets first have a much harder time doing it.
How much this monetary policy relieves the shareholders in particular can be observed once again in the Corona crisis, when share prices climbed particularly strongly, although the economy – apart from some winners of the crisis – has almost come to a standstill in many areas. The gross national product fell correspondingly sharply during this time, only Wall Street was able to look forward to a new bull market. It seems paradoxical to outsiders: The economic crisis was hardly reflected in the share prices. On the contrary, for many stockholders these were even lucrative times with strong gains. It takes a lot of imagination to assume that these price increases are not inflationary, but a consequence of the free market. Everyone was able to get an idea of this in the media, be it the Bitcoin rally, record highs for Tesla and so on. It is becoming increasingly clear: the social gap is widening.
But this development did not just begin with the corona-related emergency measures such as the PEPP bond purchase program. Rather, the corona crisis has accelerated what had already started before, from the financial crisis from 2007 to 2009 and the resulting euro crisis from 2010. The monetary and fiscal policy measures since then have favored real assets.
Anyone who bought US technology shares or a fund, real estate or increased crypto currencies ten years ago can be pleased: no savings account would have brought them such huge gains. In addition to passbook owners, tenants also look through the fingers. Life insurance benefits have decreased, the money in fixed-term deposit accounts has no longer generated any returns, and rents are rising. Those who now switch to real values when building up their assets have a much harder time.
The bitter aftertaste: The ECB only pours people pure wine when the collateral damage can no longer be denied. With rising inflation, for example, the ECB is still trying to be purposeful. In doing so, it had to continuously revise its inflation forecasts for the past year upwards – not a good way to strengthen citizens’ trust in their policies.
Something else comes up against it: The consequences of the previous policy are no longer reversible. As the “Welt” writes: “By ‘shifting the policy mix away from net asset purchases’, the ECB is now pledging to prevent the measures from increasing their distributive effect. But the insight comes too late. The monetary policy resources are exhausted, the one-off effect of a redistribution from bottom to top, which has stretched out over a decade, is irreversible – and society is divided into winners and losers in ECB policy. “
