Nowadays fiscal regulations and their enforcement respond elastically to the requirements of European policymaking. European politics does not demand monetary stability but rather the promotion of growth achieved through the instrument of monetary policy. The bond-buying program is now so massive that it has come to dominate the bond market. It is no longer the diversity of demand but the ECB and its assets that determine prices and price trends. Due to lack of assets, the ECB is continuing to lower its standards of creditworthiness for bond securities; today the ECB is de facto the world’s biggest „bad bank“.
Gold, interest rates and prices are the nervous system of the economy. This delicate web controls what we earn, what we save, what we spend our money on, what we invest in – and how much. Any disruption to this system can lead to dangerous mismanagement of risk: „zombie banks“ that should long since have gone bankrupt are still afloat thanks to cheap money. Investments are being made that fail to yield any profit – but investing is cheap, and the interest rate in profitability calculations is effectively zero.
ECB measures continue to pour even more money into this nervous system, flooding it with cash in much the way that a junkie’s brain is flooded with drugs. The aim is to encourage corporations, consumers and politicians to increase their spending. The hope is that this will trigger a frenzy of consumption that will jump start the economy. Those who consume quickest will be rewarded. Anyone who prudently deposits money in a savings account is a fool. Consumption yields a brief rush of pleasure. But profitability is no longer a decisive criterion for investment. Germany’s economy is humming along, fueled by Frankfurt’s cash infusion. New productivity records are being set, exports and wages are rising, profits are robust. The world is envious of Germany and what seems to be its new economic miracle – at least measured against the decidedly modest results achieved elsewhere in Europe. Each additional lowering of interest rates provides a further boost to Germany’s economic competitiveness by making it even easier to finance the production of its already highly competitive export products.
But outside Germany, economies continue to languish; countries that suffer from structural difficulties will not succeed in solving their problems through these means. Indeed, lending has begun to decline across Europe – in the end, sales potential governs investment, and not only cheap financing options. The energizing effect of the easy-credit drug has long since begun to fizzle. In many countries, structural problems that block growth have rendered it impossible to stimulate the economy through artificial means.
Today, it is only national governments that remain happy about this course of events. Or they put up a good pretense, at the very least. If Greece, France and Italy had to start paying interest again, they would soon find themselves pushed over the brink into bankruptcy. German Minister of Finance Wolfgang Schäuble’s balanced German budget is also a result of the zero-rate policy. Without it, Germany’s budget would still be in the red. And now ECB chief Mario Draghi has expanded the quantitative easing program from €60 bn per month to €80 bn per month. Interest rates have sunk from a paltry 0.05 percent to zero. Consumers in debt-laden countries are demanding ever more quantitative easing, just like an addict demanding ever-higher doses of their drug of choice. Now, institutional investors will even have to pay a penalty rate. The drug has been infused with a new and heretofore unknown active ingredient. But side effects are also becoming apparent: anyone who saves is slowly falling victim to expropriation. Union Invest, one of the largest investment companies that bundles small savings accounts, calculates that quantitative easing will cost German households €224 bn in lost interest earnings over five years. People who save money are growing poorer instead of building up their retirement funds. The policy of the ECB is operating like a massive redistribution machine that is fed by German savings accounts, which are then sent to southern Europe. Italy alone is saving at least €54 bn in interest payments – each year.