German economy in strong position to reap ECB QE’s benefits

Germany, the biggest opponent of the European Central Bank’s new stimulus program, is poised to reap immediate benefits from the effort—an irony that underscores the complexities of designing one monetary policy for the 19-member currency area.

The ECB’s program, unveiled in January in an attempt to shake the eurozone out of its economic torpor, drew cheers from many investors, politicians and businesspeople from the region and around the world.

But in Germany, Europe’s largest economy and one of the Continent’s healthiest, the decision was met with disapproval from political leaders and the public alike. That is even though the country’s export dominance, well-capitalized banks and strong labor markets provide its economy the best conditions in Europe to channel the central bank’s easy-money policies into borrowing, spending and output.

The president of Germany’s traditionally conservative central bank, Jens Weidmann, says the ECB’s massive stimulus would fail to address the eurozone’s debt and competitiveness problems. The program, he warns, would take pressure off countries such as Italy and France to revamp their labor markets and push through other economic overhauls. Chancellor Angela Merkel , as well as much of German media and industry, has stressed the same point.

Germany’s opposition, in part, reflects the economic disparity that has complicated the ECB’s task of formulating a single monetary policy for 19 mismatched countries. It also highlights a persistent philosophical disagreement between Germany and most of its fellow eurozone members about how to tackle the crisis that broke out in 2010.

Berlin’s experience with overhauling its own rigid labor market and trimming the welfare state in 2003, and the long and relatively robust recovery that ensued, has played a key role in its insistence that other eurozone governments do the same.

Benefits of the stimulus may pale against long-term risks, critics in Germany say.

“It’s not necessary to flood the entire eurozone in order to fight fires in individual countries,” says Karl-Ludwig Kley, chief executive of German pharmaceutical company Merck KGaA.