German conservatives drag ECB's monetary policy into election campaign

FILE PHOTO: The headquarters of the European Central Bank (ECB) are pictured in Frankfurt, Germany, July 8, 2020. REUTERS/Ralph Orlowski/File Photo

STUTTGART (Reuters) - Germany's conservatives, trailing in polls less than two weeks before a national election, launched a stinging attack on Wednesday on the European Central Bank's loose monetary policy.

Friedrich Merz, the expert for fiscal and economic policies in the team of conservative top candidate Armin Laschet, said that, in contrast to central banks in Japan and the United States, the ECB was still not normalising its monetary policy.

"This is having a significant impact on savings and pensions," Merz told a news conference in the southern city of Stuttgart, standing next to Laschet.

"In any case, the zero interest rate policy cannot be continued if we see higher inflation rates this year and next - and possibly beyond," Merz added.

An ECB spokesperson declined to comment.

The ECB said last Thursday it would trim its emergency bond purchases over the coming quarter, taking a first small step towards unwinding the emergency aid that has propped up the euro zone economy during the coronavirus pandemic.

The ECB pulled out all the stops last year as COVID-19 ravaged the economy, but high vaccination rates across Europe are now bolstering recovery prospects and policymakers have been under pressure to acknowledge that the worst of the pandemic is over.

The ECB took a first small step by slowing the pace of its Pandemic Emergency Purchase Programme (PEPP), which has kept borrowing costs low as governments took on unprecedented amounts of debt to finance the response to the pandemic.

The ECB has also upgraded its growth forecast for this year to 5% from a previous 4.6% target and raised its inflation expectations. It now sees the annual inflation rate at 2.2% this year, falling to 1.7% next year and 1.5% in 2023 - well below its 2% target.

Merz, a former BlackRock manager who lost out against Laschet in the CDU race for party leadership last year, said the conservative CDU/CSU alliance, also known as the Union, should be an advocate for pensioners and savers whose money needs to be protected.

In an eight-point economic paper that Laschet and Merz presented during the news conference, it said: "Monetary and fiscal policies must continue to remain separate."

Laschet so far has failed to translate Chancellor Angela Merkel's high approval ratings into continued support for his party, with all polls seeing Finance Minister Olaf Scholz and his Social Democrats comfortably in the lead.

Following the Sept. 26 election, Merkel is planning to stand down after 16 years at the helm of Europe's largest economy.

Merkel and Scholz have both over past years always avoided any direct comments on the ECB's monetary policy, pointing to the need to respect the central bank's independence.

(Reporting by Michael Nienaber and Andreas Rinke; additional reporting by Balazs Koranyi in Frankfurt; Editing by Hugh Lawson)

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