ECB lax monetary policy increases wealth inequalities – economy

The lax monetary policy of central banks accentuates the division of society between rich and poor. There are good reasons for this claim, but monetary authorities have so far denied the claim. Their monetary policy ensures, according to the argument, stable prices, growth and therefore jobs. Politicians are responsible for matters of justice.

This “none of our business” phalanx seems to be breaking down. ECB Director Isabel Schnabel said in a speech that the central bank was not an “indifferent spectator” in this debate. Finally, there are fears that the monetary authorities will benefit owners of stocks and real estate by buying bonds. Schnabel speaks of the souls of many Germans.

The increasing concentration of wealth damages the putty of society. Germany is rich, the wealth of private households amounts to 7,300 billion euros. Yet these fortunes in cash, bank deposits, stocks and insurance claims are extremely unevenly distributed. Economists at the German Institute for Economic Research have calculated: The richest percentage of the population owns around 35 percent of its wealth, while the richest ten percent in Germany own two-thirds of total net wealth . And the little that remains is shared by the rest of the population.

Low wages benefit little from rising stock prices and house prices

The case of Germany is exemplary for many industrialized countries, in which the distribution of wealth has been increasingly inequitable in recent years. The lax monetary policy of central banks is believed to be one of the reasons for this accelerated development. The zero interest rate policy has enabled private households and professional investors to borrow cheaply to purchase real estate, while low interest rates have ensured a sharp rise in stock prices. The flagship Dax index has peaked after another. However, low-income households can hardly afford to buy stocks and real estate. You are excluded from this profit growth.

At the same time, there is no doubt that accommodating monetary policy will stimulate the economy. It creates new jobs. The unemployed return to paid employment. In some sectors, wages also increase accordingly. The cheap central bank money is used by the poorest in society because it increases their chances of obtaining permanent employment. However, because of cheap money, the cost of housing increases, and this is precisely what the poorest suffer the most. House prices in Germany have increased by 60% since 2015. Since less than half of the German population owns their home, according to Schnabel, high prices could “trigger inequalities and social tensions”.

Schnabel positions itself as a keeper of the currency with social responsibility

The debate on these side effects of an accommodating monetary policy is long overdue. Schnabel is thus positioning himself in the fight for the successor of the outgoing President of the Bundesbank, Jens Weidmann, as guardian of the currency with social responsibility. It is no longer enough to talk about the key rate. Inequalities and climate change are also important issues. Then there is the core business, as prices are rising faster than expected. The rate of price increase in the euro area was 4.1% in October. If you include the cost of living in ownership, the value rises to 4.6%. In Germany, prices rose 4.5% on an annual basis, more than they have been for 28 years. Devaluation plus zero interest on the savings account – of course people are upset that the central bank is continuing its lax monetary policy.

The trillions of central bank bailouts have left their mark on society, both positive and negative. It is high time to take stock. People suspect that the end of bond purchases by the ECB is unrealistic despite high inflation, as many financially weak eurozone countries need help. But tolerated high energy and housing prices hit low-income groups harder than others. What can the ECB do to resolve these dilemmas? The central bank should answer this urgent question. It is about their credibility.

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