Mario Draghi has hit back against German criticism of the European Central Bank's interest rate policy, saying low borrowing costs were symptomatic of a glut in global savings for which Germany was partly to blame.
The ECB president’s argument on Monday is a new line of defence against strong objections from German politicians, bankers and the media over the ECB’s decision to lower its benchmark main refinancing rate to zero.
The ECB also has a deposit rate of minus 0.4 per cent, which works as a tax on lenders’ reserves held at the central bank.
The ECB has faced a barrage of criticism in Germany, where it has been accused of fuelling the rise of the Eurosceptic right and even by one newspaper of creating a “social disaster”.
Mr Draghi conceded that official interest rates were “not innocuous”, saying they put pressure on financial companies’ business models and pensioners’ income.
However, ultra loose policy was “not the problem, but a symptom of an underlying problem” caused by a “global excess of savings” and a lack of appetite for investment.
This excess – dubbed the "global savings glut" by Ben Bernanke, former US Federal Reserve chairman – lay behind a historical decline in interest rates in recent decades, the ECB president said.
“The right way is not to address the symptoms, but address the underlying cause,” Mr Draghi said, adding that ageing populations had led to increased competition for savings while declining productivity meant entrepreneurs were only willing to borrow at lower rates.
The only solution was for an increase in demand for capital.
While Mr Bernanke has focused on the role of Asian economies in exacerbating this trend, Mr Draghi highlighted the contribution of the eurozone – and notably, of Germany.
The single currency area was “also a protagonist”, the ECB president said, pointing to its 3 per cent current account surplus. He then singled out Germany for maintaining a surplus above 5 per cent over the past decade.
Low interest rates globally meant such surpluses could no longer be maintained. “In a world where real returns are low everywhere, there is simply not enough demand for capital elsewhere in the world to absorb that excess saving without declining returns,” Mr Draghi said.
In such an environment, low central bank interest rates were not the enemy, but exactly what was needed to boost demand for investment.
“If central banks did not do this, investing would be unattractive,” Mr Draghi said. “So the economy would stay in recession.”