22nd Oct 2020

Merkel criticises central banks ahead of ECB meeting

In a striking move contrary to normal protocol, German Chancellor Angela Merkel lashed out at central banks on Tuesday (2 June) for overreacting to the financial crisis, saying their response measures could lay the basis for more economic turmoil in years to come.

"I view with great scepticism the powers of the Fed for example, and also how, within Europe, the Bank of England has carved out its own small line," Ms Merkel said in Berlin of the US and UK central banks.

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  • Angela Merkel's comments come as the ECB prepares to announce details of its bond purchase plan on Thursday (Photo: The Council of the European Union)

"We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years' time."

She was also critical of the Frankfurt-based European Central Bank (ECB) which starts a two-day meeting on Wednesday to discuss, amongst other topics, the details of a plan announced last month to buy up to €60 billion of covered bonds from struggling banks.

"The European Central Bank has also bowed somewhat to international pressure with the purchase of covered bonds," Ms Merkel said.

The comments made in a prepared speech on the eve of the ECB's board meeting and just days away from European elections are a reminder of the concern many Germans have of the threat of rising inflation, a partial throwback to the hyperinflation of the Weimar Republic in the 1920s.

While other governments around the globe have been nudging their central banks to step up non-standard measures such as asset purchases, Ms Merkel's criticism of the supposedly independent ECB appears aimed at dampening their action in this area.

Her comments chime with previous statements made by Axel Weber, head of the German central bank and a member of the ECB's 22-person governing council, who has consistently warned of the inflationary risks associated with loose monetary policy.

Other board members and private economists feel however that the ECB should have been bolder in its actions to fight the financial crisis.

Ms Merkel has faced some criticism in recent days over her government's plan to provide €1.5 billion in financial support to carmaker Opel as its parent company General Motors files for bankruptcy.

With national election scheduled in Europe's largest economy this autumn, Ms Merkel's comments may well be designed to shore up her conservative support base.

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