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German Banks Call for Ending ‘Era of Cheap Money’ in Europe | ASHARQ AL-AWSAT English Archive 2005 -2017
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Deutsche Bank CEO John Cryan speaks during the bank’s annual general meeting in Frankfurt, Germany May 18, 2017. REUTERS/Ralph Orlowski

Frankfurt- Deutsche Bank (DBKGn.DE) chief executive John Cryan has called on the European Central Bank to change course on providing cheap money, warning he sees price bubbles in stocks, bonds and property.

“The era of cheap money in Europe should come to an end – despite the strong euro,” Cryan told a room full of bankers in Frankfurt on Wednesday, a day before the ECB’s governors meet to discuss policy.

Low interest rates, money printing and a penalty charge for hoarding cash have been at the heart of attempts by the central bank to reinvigorate the 19-country euro zone economy in the wake of the 2008-09 financial crisis.

But the policy, which has seen the ECB print more than 2 trillion euros ($2.4 trillion) so far, has been politically divisive, prompting fierce criticism from famously thrifty Germans.

It has also imposed a heavy cost on still fragile banks, turning deposits into a hot potato that many would rather avoid so as not to pay charges to their central bank for storing them.

The head of Germany’s largest commercial bank warned of the fallout from cheap money, cautioning against using the strong euro as a justification for printing more.

“We are now seeing signs of bubbles in more and more parts of the capital market,” he said.

Speaking at the same conference, German Finance Minister Wolfgang Schäuble said “everyone hopes worldwide that we come to a normalization as soon as possible. I believe that with the good, stable economic development of the eurozone we are much closer to this normalization than pessimists would have thought one year ago.”

The German minister, who in the past has sharply criticized ECB policy, said, however, that he supported the central bank’s independence.

The comments come one day before the ECB is set to announce its monetary policy decision. Economists said they expect the ECB to announce how it intends to unwind its large-scale bond-buying program. The ECB isn’t expected to provide many details about the end of quantitative easing at its meeting Thursday, but it may provide signals it is preparing the exit from its asset-buying program.

Cryan also gave Frankfurt an endorsement as the top location to relocate after Brexit. He said that jobs would come to Dublin, Amsterdam and Paris. But “in reality, none of these locations have the structures in place to assume a large portion of the business from London,” he said.

“There is only one European city which can fulfill these requirements and that is Frankfurt.”

Schäuble also plugged for Frankfurt as the new home of the European banking rule-setter the European Banking Authority, which is currently in London, but will have to leave due to Brexit.

“It is entirely logical that [EBA] comes to Frankfurt. I know other countries have applied for it, but I hope we can get it for Frankfurt with better arguments,” he said.

Industry loses momentum

Meanwhile, German industrial production flatlined in July as a slight rise in manufacturing and construction output was offset by a plunge in the energy sector, suggesting that factories will contribute to growth more slowly in the third quarter.

Record-high employment, increased job security and rising real wages are powering a consumer-led upswing in the German economy that looks set to help Chancellor Angela Merkel win a fourth term in office in a federal election on Sept. 24.

In a rare sign of weakness in Europe’s biggest economy, data published on Wednesday had shown that feeble domestic demand drove a surprise fall in industrial orders in July.

Thursday’s unchanged reading for industrial output, according to Economy Ministry data, followed a fall of 1.1 percent in June and compared with a consensus forecast in a Reuters poll for a 0.6 percent gain.

ING economist Carsten Brzeski said the disappointing data could give rise to doubts about the strength of the economy. But he noted that industrial production had registered unbroken growth in the first five months of the year.

“Some pause in this trend was bound to happen,” he said. “In our view, the prospects for the German industry remain rosy, at least for the short term.”

A breakdown of the data showed factories churned out more intermediate goods in July while production of capital goods and consumer goods fell slightly.

Construction activity also rebounded, but energy output tumbled 4.7 percent which was the steepest monthly fall since January 2011 – canceling out increases in the other sectors.