Savers have been warned. Under the leadership of Lagarde, the ECB is going to follow a different course, in which the purchasing power of your money is of less importance. This is evident from a number of statements made by the new central banker of the euro area. She has only just begun, but it is already crossing borders that Draghi did not dare to cross.
Almost two months ago, I wrote that Lagarde is jeopardizing the neutrality of the ECB. That suspicion is now being confirmed. Not only does she want more control over the central bank’s bond purchase program (the ECB has to buy so-called green bonds), she is also increasing pressure on countries to provide more fiscal incentives. This week she said the Netherlands and Germany should spend more money to stimulate the economy:
“Those who have room to manoeuvre, those who have budget surpluses, such as Germany and the Netherlands, why don’t they use their surpluses to invest in infrastructure? Why do they not invest in education? Or in innovation, to enable better rebalancing.”
Lagarde lectures other countries
It is very unusual for the President of the ECB to name countries. It only has the mandate to act in the interest of the euro area as a whole. Addressing countries on their fiscal policy is not part of that, especially when it comes to countries that do have their fiscal policy in order. After all, why did Greece, Italy and Spain got into trouble during the euro crisis, while the Netherlands and Germany did not?
The Keynesian economics books state that governments must pursue a counter cyclical policy and set money aside during an economic boom. The Netherlands and Germany set an example. Lagarde believes, however, that there is not enough solidarity. “We share a currency, but we do not yet share that much fiscal policy”.
The question then is what exactly Lagarde means by solidarity. What kind of solidarity is it to lecture the Netherlands and Germany, while the southern countries threatened the survival of the euro with their irresponsible fiscal policy? And what is the solidarity towards the people in further increasing the public debt? Certainly now that the rumors of an imminent economic crisis become visible and we need to build up more buffers…
Savings of minor importance
Because of the extremely low interest rates, pension funds are under pressure and putting money in a savings account is no longer feasible. It is the legacy of Draghi, but one that Lagarde supports. In a conversation with the French radio RTL she said that creating employment is more important than the safety of our savings.
“Wouldn’t we otherwise be in a situation with much higher unemployment and much lower growth? And in the end did we not do the right thing by giving priority to jobs and economic growth instead of protecting savers? We should be happier that we have work than that our savings are protected.”
If these are Lagarde’s priorities, then you as a saver have been warned. Formally, the ECB only has a mandate to monitor price stability, but now a second mandate is slowly creeping in. Like the Federal Reserve, which does have this mandate, the ECB now seems to be concerned about employment.
This is a worrying development, because we can conclude from Lagarde’s words that the two do not always go hand in hand. And if Lagarde already states that the protection of savings is of secondary importance, then we have to be careful. Was it not also the IMF, led by Mrs Lagarde, that came up with the idea of a super levy on savings in 2013?