ECB policy and inflation: at the expense of German savers

_ Dr. Ulrich van Suntum, honorary professor, University of Münster, former Secretary-General, German Expert Council for the Assessment of Overall Economic Development (SVR).  1 January 2022.*

In November 2021 consumer prices in Germany rose by 5.2 percent compared to the same month last year. For comparable inflation rates in Germany one has to go back to the 1980s. ECB director Isabel Schnabel nevertheless thinks that in the medium term the inflation is even too low. That is completely absurd, especially when you add the prices at the producer level.

These rose by 18.4 percent in October 2021, the highest value since 1951. And in contrast to the consumer price index, this does not even include the VAT increase. Rather, we are now dealing with solid stagflation, i.e. the coincidence of stagnating production and sharply rising prices.

Since the financial crisis in 2008, the European Central Bank has increased the money supply (in the usual definition M3) by no less than 67 percent. In the same period, however, real economic output in the euro area increased by just under eight percent.

Rising prices lead to rising wages

This disproportion led to a huge surplus of money, which is now moving like an avalanche. In addition, the corona pandemic has led to production downtimes and delivery bottlenecks worldwide and also in Germany. Governments and central banks tried to make up for this by taking on massive debt and printing money. In the end, however, they only poured fuel on the fire, because if the supply was stagnant, this would increase prices all the more.

Thomas Mayer from the Flossbach von Storch Research Institute in Cologne calculated in his research paper “The wanderings of monetary politicians” how one could get the inflationary spirit back into the bottle. According to this, we would have to expect inflation rates of four to eight percent in the next few years even if the ECB were to take countermeasures immediately. But she doesn’t even think about it, but suppresses the problem.[1]

According to the former Ifo boss Hans-Werner Sinn, she acts like a coachman whose horses are runaway and who hopes that they will tire of themselves. However, this is hardly to be expected, because once inflation has started it develops its own dynamic: Rising prices lead to rising wages, which in turn make production more expensive. In addition, there is a behavior of consumers known as the Hawtrey effect: When money loses value, the faster they try to spend it or invest in real estate or other tangible goods, which in turn drives up prices.

Indirect expropriation of citizens

In the end, it is mainly the middle class that pays the bill. Because while wages, pensions and social benefits are adjusted to inflation sooner or later, savings permanently lose value. Since its introduction in 1999 until today, the euro has already lost 40 percent of its original value. In terms of purchasing power at the time, the euro in 2021 is now only worth 60 cents, despite the mostly moderate inflation rate to date.

The latest developments therefore lead savers to fear the worst, especially since they no longer even receive interest on liquid investments. Laughing profiteers from the devaluation, on the other hand, are the debtors, above all the state itself. Because its debts are calculated in real purchasing power, always lower, without the finance minister having to do anything about it. In history, governments have used this route of indirect expropriation of their citizens in order to free themselves from their own over-indebtedness.

It is often said that one can avoid this by reallocating one’s savings to real investments. However, this does not work for two reasons: Firstly, when you buy a share, for example, the money is not gone, but only someone else has it, and thus the same problem. Second, the state has always found ways and means to thwart such rescue strategies.

For example, realized price gains on stocks have to be taxed, even if they only reflect the inflation. The same applies to so-called speculative gains in real estate, the owners of which, as alleged inflation winners, can also be fleeced with “burden compensation payments”. In principle, this also applies to private gold investments, which at times were even simply banned in the USA.

No resistance is to be expected from the FDP

Lawsuits against such machinations have so far mostly been unsuccessful. The German Federal Constitutional Court has repeatedly confirmed the so-called nominal value principle for taxation. In the case of securities revenues, for example, only the nominal euro amounts are important and not their real value.

So if one, for example, earns three percent interest income on one’s investment at an inflation rate of three percent and has therefore earned nothing, one still has to pay full tax on the only apparent profit. This shows not only the low economic competence of many constitutional lawyers, but also the almost complete helplessness of medium-sized citizens and companies in particular against a state that exploits them unscrupulously.

Under the new traffic light government (SPD, Greens, FDP) this is unlikely to get any better. Already in the coalition agreement it is said in an involuntary comedy that the European Stability Pact has “proven its flexibility”. Barely in office, the new Finance Minister Christian Lindner (FDP) has already expressed understanding for the French desire for further relaxation. He also set a bad example and put 60 billion euros of unneeded Corona loans in a shadow budget in order to bypass the debt brake.

This means that there is hardly any more resistance to be expected from the FDP against the ever-increasing inflation of money. Their red-green coalition partners should be welcome anyway, because their constituencies are hardly affected due to lack of financial assets. The hard-working and thrifty in the country, on the other hand, can hardly be expropriated in a more elegant and perfidious manner. Who else should pay for the many expensive projects of the coalition agreement in the end?


[1] Mayer T. (2021). Die Irrfahrten der Geldpolitiker. Flossbach von Storch Institut. URL:

*Translated and republished from the original with kind permission: Van Suntum (2021). Auf Kosten der Sparer. Junge Freiheit.

Leave a Reply

Your email address will not be published. Required fields are marked *