Dr. Nikolaus von Bomhard zur Initiative für eine zukunftsfähige Finanz- und Geldpolitik

Yes, Mr. Witt. I couldn't be more surprised after the signals that had already come from the ECB Council to the public. Recently, the discussion about inflation seemed a bit like whistling in the dark. Today we saw that expectations were raised significantly, but surprisingly no conclusive actions followed. In principle, they did not really tighten the reins on the question of quality. So disappointment, but not really surprising.

There are two dimensions. But before I get to that, let me address another thought: the side effects that the German Constitutional Court has dealt with. I recall a discussion with the then chairman of the Financial Stability Board where we talked about side effects. He said, 'The redistribution effect is not our concern; only stability is relevant.' But that changed. Suddenly other arguments came into play. I see this as inconsistent. When you already consider side effects, you cannot later ignore them. Now to the two main dimensions: First, social cohesion. Low-income earners, especially those below the tariff, are particularly unprotected. In the tariff, we will see what the unions achieve. Compared to those invested in real assets, you mentioned retirement provision. In Germany, we have long worked with guaranteed nominal interest rates in classic life insurance. When the real value is eroded by inflation, nominal interest is immediately devalued. This hits the same population groups that relied on this form of retirement provision. That is a huge issue for society's resilience. The second dimension is the financial market itself. Interest as a risk measure has been completely switched off over the past years. As a result, investors, in their search for yield, have moved into completely different assets, sometimes without the necessary know-how. One can hardly argue whether risk premiums are still risk-appropriate. The ECB has, in my view, maneuvered itself into a trap from which it will become increasingly difficult to escape. The longer they wait, the harder it gets because the major debtors – the states – accumulate debt. At the same time, asset managers and large investors, whose volumes have been constantly inflated, generate huge fees based on those volumes. Many cheer the ECB, but this accumulation cannot continue forever. A stall may occur. We saw the Fed react, but they have a different system. The Fed is a central bank for the entire United States. In Europe, we have very different sovereign countries and actually a political mandate – at least that was the goal of the European Central Bank.

Let me summarize this whole complex as an erosion of the rule of law, at least for Germany but also for Europe. There are various components. First, the ECB's mandate overreach. It is rightly criticized. One aspect is the deviation from the core goal of price stability. We already spoke about side effects taking center stage. I also think it was unfortunate to give parts of bank supervision to the ECB. That is a conflict of interest of the first order, which now directly hampers the ECB in its monetary policy. Recent developments, such as whether climate aspects should play a role in ECB policy, are a purely political task and have no place there. The German Constitutional Court rightly pointed out that the assessment must be comprehensible and proportionate. The infringement proceedings were dropped, but the uproar was enormous. These are all small steps. If you put yourself in the shoes of a citizen, think of enforcement deficits in migration or the Maastricht Treaty and the question of joint liability in the EU. The list is long. The ECB is a significant part of these uneasy feelings. The ECB's mandate can be changed, which is perfectly fine, but that must happen in a clean, democratically legitimate process, not through piecemeal steps with the excuse that the world is ending every few years. That's not how it works. As for the comparison with the USA: in Europe, the situation is clearly more difficult. First, the ECB's mandate is narrower. Second, we have different economic strengths with different political systems. In the USA, the Federal Reserve spans across states, while in Europe it's only parts of countries with sovereign states behind them. Making the right monetary policy under these conditions is a challenge. Therefore, we must ensure that the rules are clear and are followed. That provides predictability and planning for politics, the financial industry, and the real economy. That is currently lacking. Things are being shifted left and right. Looking at today's decision again: you can clearly see how difficult the ECB finds it to take the right steps. Every further delay worsens the situation. So not only surprising little surprise, but definitely disappointment. The question is whether there was even a clear line coming from the meeting. I didn't expect that anyway.

I think politics already holds a key in its own hands. Nothing helps but to face these admittedly unpleasant questions in the European context. But one must address the issue and act politically again. Waiting doesn't help. This so-called muddling through is not a long-term solution. Politics also has a role here. Using the ECB as a cleanup hitter in soccer terminology has been going on for too long. That no longer works. The ball must be passed back to politics. As I said, we must at least start. No one demands radical steps; that would be unwise. But pretending nothing is wrong and that everything can continue as before also doesn't work. Regarding the erosion of the rule of law, politics also has the much more important key. It must set the framework conditions so that they are clear and the ECB operates within its proper mandate. This includes a public discussion, not behind closed doors.