ECB’s Schnabel Tells Germany Not to Fear Rising Public Debt

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Rising public debt levels resulting from the pandemic shouldn’t be seen as a threat to the European Central Bank’s independence, Executive Board member Isabel Schnabel said in one of Germany’s most important newspapers.

“The pandemic is driving up government debt throughout the world,” she wrote in an opinion piece for Frankfurter Allgemeine Zeitung published by the ECB on Saturday. “In Germany especially, many observers are concerned about this development. They consider it a threat to the independence of the European Central Bank.”

The policy maker, who is German herself, urged that strong fiscal support in the euro area in fact “strengthens the effectiveness of monetary policy and mitigates the long-term costs of the pandemic.” In the past week, several of her colleagues have warned against withdrawing government stimulus too soon and creating a “cliff effect” that leaves companies and workers vulnerable.

Targeted, forward-looking government investments “can foster sustainable growth, increase long-term competitiveness and facilitate the necessary reduction of the debt ratio once the crisis has been overcome,” Schnabel said. “This would also afford the ECB more room for maneuver in the future, which would even strengthen its independence.”

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