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Source: European Central Bank

INTERVIEW

Transcript of an interview with Isabel Schnabel, Member of the Executive Board of the ECB, with ARD “plusminus”, conducted by Markus Gürne on 8 July 2020

Friday, 13 July 2020

For the first time, we welcome someone from the leadership of the European Central Bank to our studio: Professor Isabel Schnabel, who has been a Member of the ECB’s Executive Board since the start of this year. She is also a former Member of the German Council of Economic Experts and Professor of Financial Ecomonics. Good evening, Ms Schnabel.

Good evening, Mr Gürne.

Has your view of the ECB’s monetary policy changed since you took up your new position? You used to be critical yourself.

It seems to me that the general attitude towards the ECB has improved over the past few weeks and months. And that is probably because people are pleased that the ECB responded to this crisis in such a decisive manner, that we basically averted a serious financial crisis in March. So my impression right now is that the criticism has abated somewhat. But I assure you that we take this criticism very seriously. We bear a huge responsibility and reflect carefully on the measures that we take.

As we’ve just heard in the video, there are still quite a few critical voices, also in social media. How do you plan to win over the Germans, the Germans who are critical of the ECB?

I want to listen. And I want to explain. This is extremely important to me, and I have made it part of my mission. In recent years, central banks have frequently spoken with experts, and have communicated with them in a language that may not be understandable for the general public. I think we have a lot of work to do in that respect. We need to improve our communication and we have to do more explaining. And that’s what I want to do.

Germans have a deep-seated fear of inflation, of money losing its value. And perceived inflation is indeed much higher than the measured inflation rate. Ms Schnabel, an inflation rate of 0.3% is simply a bare fact. But as we’ve just heard, the perceived rate is much higher. How does that all fit together?

Yes, you are absolutely right. We know that perceived inflation often differs from the rate that we measure. And that’s because we measure inflation using a basket of goods. And that basket contains hundreds of items. But as regards perceived inflation, people look especially closely at the prices of items that they consume regularly, such as groceries. And these have indeed increased in price quite strongly over the past few months. But the prices for other items, such as durable consumer goods, have actually been falling. However, we don’t really notice this as much because we don’t buy them frequently.

That’s the famous basket of goods including the washing machine, which you don’t buy regularly as you only have one. The ECB has always communicated, in a mantra-like fasion, that inflation should be close to 2%. This benchmark is now looking increasingly shaky. Why is that?

I’m not sure that this benchmark is looking shaky. What I can say is that we will carefully review our monetary policy strategy. And we will of course ask ourselves if this inflation aim of 2% is still appropriate. But many of the reasons that resulted in the agreement on this aim of 2% are still valid. So it’s not at all certain that we will eventually diverge from this target.

“What can the ECB do to compensate me for the losses that I, as a small saver, have had to bear during this period?” I couldn’t put it better myself, so I will pass the question on to you.

I completely understand that people are concerned. They are concerned because it’s very difficult to build up savings when interest rates are low. But it’s important to bear in mind that we are not only savers. We are also borrowers, we are taxpayers and we are workers. And while savers have suffered from low interest rates, people who have maybe bought a house and taken out a loan have benefited. The public sector has also benefited hugely, because it has been able to borrow at such favourable rates. And, most of all, workers have benefited, because the ECB’s monetary policy has had a very positive impact on the labour market in recent years. In other words, many people now have a job which they might not have had otherwise.

But Id like to briefly come back to the question, Ms Schnabel, of what savers should do to save differently?

Yes, even in an environment of low interest rates, people need to save money for retirement, of course. The question of what form that should take depends very much on individual needs, on risk preferences and so on. In any case, people should not just deposit their money in a savings account, they should also think about other forms of saving.

The coronavirus pandemic has put paid to any remaining hopes that we might see positive interest rates again in the coming years. At the same time, the ECB is providing vast sums of money for rescue packages to counter the pandemic. The sums involved are beyond comprehension. Who will pay it back? And when?

I’d like to make one thing very clear from the start: the ECB doesn’t put together rescue packages. Rescue packages are put together by politicians, using fiscal policy. The central bank safeguards price stability. In normal times, the central bank does this through its interest rate policy. And in times like these, when the level of interest rates is very low, it does so by buying bonds, in other words debt issued by governments and by companies. The aim is to improve financing conditions so that companies invest more, households consume more and the whole economic process consequently picks up momentum so that prices start to rise again.

And yet there is a link between politics and monetary policy. The Federal Constitutional Court in Karlsruhe, in a noteworthy ruling, said that the ECB cannot carry on as before. It has limited your scope for action. How are you dealing with that?

In fact, the Federal Constitutional Court didn’t take issue with the programme itself. They criticised us for not having provided sufficient evidence of why these are the right instruments, why our actions are proportionate. And we have provided documentation to the German parliament and the German government, both of which are now satisfied that we do indeed always conduct an assessment, a very careful assessment, of the proportionality of our programmes. What we certainly do need to work on – and this brings us back to the start of our conversation – is our communication.

Thank you, Ms Schnabel, for talking to us today.

It was my pleasure.

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