Bavarian Finance Minister blasts ECB's low rate policy

BERLIN (Reuters) – The finance minister for the southern German state of Bavaria attacked the European Central Bank’s low interest rate policy on Saturday, saying it threatened financial order in the euro zone and caused a “stealthy expropriation” of German savings.

The unusually strong attack on the ECB, which cut interest rates this month to a record low of 0.25 percent, reflects concern about the risk of inflation in Europe’s biggest economy, where growth is more robust than elsewhere in the euro zone.

Markus Soeder, an outspoken senior member of the Christian Social Union (CSU) – sister party of Chancellor Angela Merkel’s conservative Christian Democrats (CDU) – wrote in a column for Focus magazine that the effects of low interest rates were serious.

“The (ECB’s) low interest rate policy can become one of the biggest financial problems in the euro zone,” he wrote.

“The short-term painkiller is hindering a long-term therapy towards a stable financial order,” he wrote, adding that the threat of negative interest rates set off alarm bells in Germany.

Some ECB policymakers have raised the possibility of more action, such as negative deposit rates – charging banks for parking money at the ECB – or printing money to buy up assets. The ECB holds a policy meeting next Thursday.

Many Germans, fearful of inflation due to their experiences with hyperinflation before Hitler’s rise to power, oppose the ECB’s latest cut. But politicians tend not to comment directly on monetary policy as they view ECB independence as sacrosanct.

The sharp differences between euro zone countries, both in price rises and unemployment, present the ECB with a conundrum.

By cutting the cost of borrowing, it may inadvertently help states who need it least, fuelling price rises in Germany while credit-starved consumers in Ireland remain reluctant to spend.

German annual inflation unexpectedly accelerated to 1.3 percent in November but is still well below the ECB’s target of close to but just below 2 percent for the euro zone as a whole.

Soeder said the ECB clearly wanted to help the euro zone’s weaker members but that German savers were “footing the bill”.

“The stealthy expropriation of savers must no longer be accepted,” he wrote, adding that cheap money contained risks.

“Because safe deposits will not yield profits, capital will be diverted into risky investments,” he wrote, citing a possible bubble in property, shares and commodity markets.

“As a consequence, a new financial crisis threatens when interest rates rise,” he said.

(Reporting by Madeline Chambers; Editing by Hugh Lawson)

Bavarian Finance Minister blasts ECB's low rate policy