In view of historically high inflation rates, the ECB has ended its zero interest rate policy. Further rate hikes in the coming months are widely considered necessary to stabilize prices. Maurice Höfgen belongs to a small minority of economists who continue to advocate low interest rates. In the ntv.de interview he explains why.
ntv.de: For years, the experts were at odds about the low interest rate policy of the ECB. But now, with inflation rates higher than they've been in decades, everyone agrees: interest rates have to rise, and by a lot, to get inflation under control again, don't they?
Maurice Höfgen: I'm very skeptical about the rate hikes. Inflation is not the same as inflation. Central bank rate hikes and government austerity may be a suitable calming agent when a booming economy and overheated demand are driving prices up. That's not the case. We have a classic supply shock: a shortage of gas in particular causes energy prices and thus the prices of all goods that contain a lot of energy to rise sharply. Before a doctor prescribes a therapy, he must make a well-founded diagnosis. In order to get the price increases under control at the moment, interest rate increases are certainly not the right medicine. Anyone who demands this is asking the ECB to do the impossible.
And what is the right therapy?
We must do everything we can to eliminate the supply bottlenecks, i.e. find a replacement for Russian gas as quickly as possible. Expand alternative energy sources such as solar and wind energy, but also get coal-fired power plants connected to the grid in the short term in order to save gas when generating electricity and get the skyrocketing electricity price under control again. Likewise, incentives and help for companies that switch from gas to alternatives. Economics Minister Robert Habeck is in demand here, not the ECB. I think the idea of stalling the economy, causing company bankruptcies and increasing unemployment, in order to reduce demand and ultimately prices, especially in the current crisis by raising interest rates and also through austerity policies by the state, is questionable - and anti-social on top of that.
So the central bank shouldn't change monetary policy at all?
Interest rate hikes and the end of bond purchases make money and credit more expensive. That makes investments difficult. But in order to overcome the current energy crisis, we still have to invest: companies have to convert their gas-powered systems, expand renewable energies, private individuals have to insulate their houses, switch to heat pumps, the state has to support all of this and build the infrastructure for the energy transition. The faster the better. However, high interest rates are a brake.
However, Federal Finance Minister Lindner wants to make savings in the federal budget, arguing, among other things, that national debt is driving inflation.
That's illogical. The state must invest more, not less, primarily to provide more cheap energy and to make Germany independent of Russian gas. 16 years of investment backlog have made us dependent and vulnerable.
What is the central bank's role in fighting inflation? Price stability is your most important task, isn't it?
Inflation will come down again once the war in Ukraine is over or Germany has enough substitutes for energy imports from Russia. I know this is difficult in view of the current dramatic price increases and the great political pressure: But the best thing would be for the ECB to just keep its feet still for as long as possible. With low interest rates, it should enable consumers, companies and states to finance the urgently needed investments.
One argument that is repeatedly used in favor of significant interest rate hikes is that the ECB must dampen inflation expectations. It should therefore send a signal that it is taking vigorous and effective action against inflation, so that a general expectation of further price increases does not become a self-fulfilling prophecy. Isn't that an important argument?
The main concern here is a wage-price spiral. The central bank is supposed to keep the unions from demanding high wages by raising interest rates. I highly doubt that this will work. It is much more promising to bring employers and employees together, as the Chancellor is doing with the Concerted Action, so that they can negotiate with each other how to share the burden of inflation among themselves.
Max Borowski spoke to Maurice Höfgen
