ECB official quits over rate-cutting policies
A top German official has quit the European Central Bank in protest over its push to ever lower interest rates, as doubts grow over whether the bank's policies will be able to rescue the eurozone.
Sabine Lautenschlager has become the third German official to quit over the years in protest over ECB policies.
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Her departure came as credit rating agency S&P issued a stark warning that Europe was now trapped in an era of low growth for which the only solution was government spending. "The eurozone has reached a state that looks a lot like secular stagnation: low growth and low inflation with plenty of interest rates in negative territory," S&P's senior Europe economist Marion Amiot wrote in a report.
S&P expects growth in the bloc to fall to just 1.1pc next year from a forecast of 1.2pc this year, and now believes that the ECB will not start raising interest rates until 2022 at the earliest, although it questions whether low rates will do much to lift growth.
"Therefore, it makes sense for governments to borrow more to finance growth- enhancing projects," Ms Amiot wrote. "One option already heard in the Netherlands or Germany is to use fiscal space to finance the transition to greener growth."
While there have been discussions in the German press of new green funds, the government appears to be sticking to its tight budget plans and there are only modest plans for a rise in federal government spending. Even as the ECB presses for lower rates, its policies may be self-defeating, according to Jennifer McKeown, head of global economics at consultancy Capital Economics.
She warned exempting some bank reserves from lower rates risked exacerbating the bloc's economic problems.
"If anything, the shift to more tiering has probably served to reinforce expectations that interest rates will stay low for a very long period," she wrote in a report. "This latest foray into uncharted territory has served mainly to highlight that central banks are reaching their limits."