The head of Germany’s central bank has added his weight to growing pressure for the country’s government to increase public investment and warned its commitment to a balanced federal budget should not become “a fetish”.
The comments by Jens Weidmann in an interview with Süddeutsche Zeitung published on Saturday underline how the political mood in Germany is shifting against its long-running attachment to fiscal surpluses after the economy slowed down markedly this year.
The government’s promise to maintain a budget surplus has come under fire from economists and from the ECB. But recently the political debate on the issue of the “schwarze null”, or “black zero”, has intensified.
Finance minister Olaf Scholz said recently that he supported the new leaders of his Social Democratic party in their push for higher public investment that should not be impeded by the promise to maintain fiscal prudence.
Mr Weidmann’s interview indicates he is becoming more supportive of the ECB’s policies under its new president Christine Lagarde than he was under her predecessor Mario Draghi as he made rare statements about the benefits of negative interest rates.
“One must also ask what would have happened if monetary policy had not been expansionary,” he said. “It is important that we do not remain trapped longer than necessary in this low-interest phase.”
Widely considered a leading opponent to the ECB’s ultra-loose monetary policy, Mr Weidmann pointed out that Berlin was saving €55bn a year on servicing its debt compared to what it would have paid if interest rates had stayed at 2007 levels.
“Yes, it is difficult to invest money safely and profitably,” he said. “But monetary policy has a broader effect. It has supported the economy and helped to raise employment and wages.”
He added that “at times there were negative real interest rates on [German] short-term savings deposits in the 1970s, 1980s, 1990s and 2000s”.
Having previously sounded sceptical about Ms Lagarde’s promise to make tackling climate change a priority for the ECB under her presidency, the Bundesbank boss sounded a more positive note.
“I agree with Christine Lagarde that we must better understand how climate change and climate policy affect our core tasks,” he said, while adding: “But central banks cannot make climate policy themselves. That is up to governments and parliaments.”
Once dismissed by Mr Draghi as Nein zu Allum — No to everything — Mr Weidmann has spent many years resisting the ECB’s increasingly unconventional policies that have flooded markets with cheap money.
But he appeared to soften his opposition to key ECB policies on Saturday, adding his voice to calls by Ms Lagarde for countries with strong fiscal positions to use them to increase public investment, a move she says would make monetary policy more effective.
“There is nothing to be said against using short-term budgetary leeway to strengthen the basic conditions for growth through investment or to relieve the burden on citizens,” said the Bundesbank boss.
“It’s about good transport networks, but also about an efficient digital infrastructure and a climate-friendly energy supply,” he said. “Both public and private investment is needed here. There is certainly also a need for higher spending on education.”
Officials in Berlin complain that existing budgets are not being spent fully due to construction and planning bottlenecks. Mr Weidmann agreed but said: “The goal should also not be the highest possible expenditure budget, but the implementation of meaningful projects.”
He said “black zero” had served its purpose of ensuring sound finances, adding: “This has been achieved so far. Of course we should not make a fetish out of the black zero.”