The bank for a changing world

Savings, Germany: 7 days of Economics

  • 09.09.2016

ECB policy is effective (“the transmission […] has never worked better than it does today”), but it can’t be the only game in town. This, in essence, is the message Mr. Draghi addressed yesterday not only to the markets, but above all to the eurozone governments.

The central bank presidentcalled for further structural reforms andfiscal policies to promote growth. There is nothing new about this message, but he repeated it with special emphasis andfurther details. Pushed to develop his thoughts during the press conference, Mr.Draghi unambiguously stated that he supported higher wages and a fiscal stimulus in Germany, two developments that would reduce the country’s current account surplus, the highest in the world. Seen from Germany, there is no justification for stimulating demand: the economy isrunning at full employment and the ageing population explains the build-up of assets. From a European perspective, in contrast, there is: chronically low inflation argues for more vigorous demand when it’s possible.Given the absence of common fiscal tools, the stability of the eurozone continues todepend on the - necessarily difficult -coordination of national policies which therefore have to take on a European dimension. This was already the case during the debt crisis. The current situationis another reminder that macroeconomic imbalances cannot be looked at solely interms of deficits. At a time when the G20 leaders have once again affirmed their determination to use all available instruments to achieve stronger and better balanced growth, it is clearly the global excess savings that is now a problem for the global economy and central bankers.

Thibault Mercier

Current Account (USD Bn)