By Bertrand Benoit in Berlin and Brian Blackstone in Frankfurt
Germany, the biggest opponent of the European Central Bank's new
stimulus program, is poised to reap immediate benefits from the
effort--an irony that underscores the complexities of designing one
monetary policy for the 19-member currency area.
The ECB's program, unveiled in January in an attempt to shake
the eurozone out of its economic torpor, drew cheers from many
investors, politicians and businesspeople from the region and
around the world.
But in Germany, Europe's largest economy and one of the
Continent's healthiest, the decision was met with disapproval from
political leaders and the public alike. That is even though the
country's export dominance, well-capitalized banks and strong labor
markets provide its economy the best conditions in Europe to
channel the central bank's easy-money policies into borrowing,
spending and output.
The president of Germany's traditionally conservative central
bank, Jens Weidmann, says the ECB's massive stimulus would fail to
address the eurozone's debt and competitiveness problems. The
program, he warns, would take pressure off countries such as Italy
and France to revamp their labor markets and push through other
economic overhauls. Chancellor Angela Merkel, as well as much of
German media and industry, has stressed the same point.
Germany's opposition, in part, reflects the economic disparity
that has complicated the ECB's task of formulating a single
monetary policy for 19 mismatched countries. It also highlights a
persistent philosophical disagreement between Germany and most of
its fellow eurozone members about how to tackle the crisis that
broke out in 2010.
Berlin's experience with overhauling its own rigid labor market
and trimming the welfare state in 2003, and the long and relatively
robust recovery that ensued, have played a key role in its
insistence that other eurozone governments do the same.
Benefits of the stimulus may pale against long-term risks,
critics in Germany say. "It's not necessary to flood the entire
eurozone in order to fight fires in individual countries," says
Karl-Ludwig Kley, chief executive of German pharmaceutical company
Merck KGaA.
"Germany has always had a long-term horizon and has been more
critical about the second- and third-round effects" of policies,
says Dirk Schumacher, senior European economist at Goldman Sachs.
"Others have tended to say: 'Let's deal with the side effects
later.'"
Given the growth-boosting effects expected from the ECB's
quantitative easing--from rising stock and property prices to
easier credit conditions and higher exports--Germany's opposition
has left some economists perplexed.
"It's a big puzzle," says Prof. Marcel Fratzscher, head of the
Berlin-based DIW Institute for Economic Research and one of the few
prominent German economists to welcome the ECB's announcement.
German markets have applauded the ECB's move. The DAX index of
blue-chip listed companies has appreciated by almost 10% this year
and almost 5% since the quantitative-easing program was unveiled
last week.
Anticipation of the bond-purchase program has driven a massive
rally in German government bonds. Ten-year yields, which were above
1% as recently as late September, touched a record low of just
below 0.3% the day after the ECB meeting. Yields are negative up to
maturities of five years, meaning investors are effectively paying
Germany to borrow.
Stimulus plans have also had a dramatic impact on the euro. The
currency has fallen more than 15% against the dollar in the last
six months to trade at around $1.13--a development that will help
German exporters.
In a theoretical model assuming a 10% fall in the euro against a
basket of other currencies, the eurozone's $13 trillion economy
would gain 0.3 percentage points of growth, Carsten Brzeski,
economist at ING Bank, estimates.
But the effects would vary widely. Germany and the Netherlands,
which export extensively outside the eurozone, would see the
biggest boosts--0.5 percentage points or more to growth in gross
domestic product--while the weaker economies of Spain and France
would benefit less.
Economists at Nomura see Germany benefiting about twice as much
as France from the euro depreciation. With foreign trade accounting
for more than 70% of German GDP, exports are vital to the country's
wealth.
According to Gert Peersman, a professor of economics at Ghent
University, a 2% rise in the amount of assets the ECB holds raises
German GDP by around 0.3%, about twice the effect that Spain and
Italy are expected to experience. The reason: Germany's banks are
better capitalized than many of their European peers, allowing them
more leeway to lend.
German households, too, seem better positioned to channel the
ECB's largess into new spending. In January, consumer confidence
hit a 13-year high according to data released Wednesday by research
group GfK, while it was flat in France and well below its long-term
average.
Other German asset classes also stand to benefit. Property
prices in Germany fell between 2001 and 2007 but are now rising by
up to 10% a year in some cities and with household debt low, they
could go further.
German critics of the ECB object that those rising asset prices
will have a limited effect. Just over half of German households own
their homes, according to the Organization for Economic Cooperation
and Development, well below the 71% European average. While
low-yielding government bonds remain popular, stock ownership is
falling.
That is part of the reason why many Germans oppose stimulus
plans. "Essentially, the bottom 60% of wealth and income
distribution have their savings on their savings accounts," Prof.
Fratzscher says. "Given the current interest rates, building wealth
is impossible for them."
Josie Cox
in London contributed to this article.