ECB brings PR campaign directly to the Germans

European Central Bank executive board member Yves Mersch took the defence of ECB policies directly to critical Germans on Thursday, reassuring them there is no plot underway to eliminate cash altogether.

Tensions between the ECB and Germany have worsened since the bank unveiled fresh stimulus in March, expanding asset buys and cutting interest rates deeper into negative territory, much to the objection of Germany's Bundesbank.

There have also been complaints in Germany about the ECB’s plan to phase out the €500 note, with some seeing a conspiracy to get rid of cash altogether.

German officials have complained that negative rates hurt thrifty savers and weigh on the banking sector in Europe's biggest economy. Finance minister Wolfgang Schaeuble even complained that record-low rates were causing "extraordinary problems" and had contributed to the rise of the right-wing AfD party.

In an opinion piece on Spiegel Online, Mr Mersch played down the worries.

Abolishing cash

“For many citizens cash symbolises not only purchasing power, but also represents privacy,” Mr Mersch said.

“Abolishing cash is not on the agenda.”

He added: “Critics ignore the side effects excessively negative interest rates. Secondly, the effectiveness of (excessively) negative interest rates is probably overestimated.”

The article appeared just days after ECB president Mario Draghi and board member Benoit Coeure took the defence of the bank directly to Germans in newspaper interviews and editorials, a rare PR campaign in a single country.

Although the ECB has acknowledged some German concerns, it has also warned that excessive criticism threatens its independence and may erode confidence, a detriment to its effectiveness.

Mr Mersch said economic players adapt their behaviour to changing conditions and negative rates may lose their effectiveness when people start to worry about the future value of their pensions.

Germany, however, scored a small victory in the debate over the €500 note when the ECB decided only to stop printing and distributing the bill but did not put a date on when it would cease to be legal tender and also declared that the bill would never lose its validity, much like the old German deutsche mark.

Reuters