19 October 2019

IMF/World Bank Annual Meetings: banking association president Peters sees no global recession

  • Banks expecting 3% global growth
  • ECB policy seriously handicapping European banks
  • Call for a digital euro for Europe – no to Libra

The private banks are expecting global growth to slow down to around 3% in 2019. “That would be a good half a percentage point less than the average over the past five years and a marked slackening-off,” said Hans-Walter Peters, the Association of German Banks’ president, on the occasion of the IMF/World Bank Annual Meetings in Washington. In such troubled times, this raised the question more than ever of how the competitiveness of our economy could be strengthened.

The ECB’s approach of countering the looming economic slowdown with negative interest rates was too short-sighted. It wouldn’t work, as the reason for the downturn was not an inadequate supply of credit but a reluctance to invest. For European banks, the negative interest rate policy was like a millstone around their necks. “European banks will still have to pay around five billion euros annually to the ECB as a special levy,” Mr Peters said. This amount could quickly climb again to six or seven billion euros next year when the new asset purchase programme increased the excess liquidity in the banking system.

The situation in the US was quite different. The Fed paid US banks interest on their balances. If the Fed’s positive interest rates were set against the ECB’s negative interest rates, the result was a difference in the three-digit billion range. So thanks to interest rate policy alone, US banks were, overall, fully 120 billion euros better off earnings-wise than eurozone banks. “The ECB’s decisions in the financial crisis were resolute and right, but today they are wrong and inappropriate,” Mr Peters added.

Turning to Facebook’s digital currency, Libra, Mr Peters saw enormous risks if responsibility for a currency were no longer to lie with states. It was thus all the more important not to leave the market to others. The availability of digital money was going to be of key importance for many companies in the future. That was why Europe needed a digital euro. This would have to satisfy the highest regulatory standards, be suitable for use across borders and made available through the banking system. “A digital euro would be a major contribution to a stronger Europe determinedly tackling the challenges of the digital revolution”, Mr Peters said.

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