Speaking to The Financial Times recently, the chief executive of the German industrial gas and plant engineering group Linde warned that the European Central Bank’s ‘quantitative easing’ programme is causing financial volatility and could create another ‘bubble’.
Wolfgang Buechele told the newspaper: “You hear from national bankers and the ECB that we have to focus on managing bubbles. However, ‘quantitative easing’ is pumping plentiful funds into the economy without actually achieving the growth that is intended.
"The volatility of the economy is increasing as a result of these measures, so companies need to be even better prepared. We are obliged to run a stable balance sheet . . . rather than embarking on opportunistic possibilities that might not be beneficial in the long run. Yes, you have to look for growth opportunities, but one also has to be careful and disciplined.”
The ECB’s bond-buying programme, referred to as ‘quantitative easing’, began in January. This has helped to cut borrowing costs for businesses and significantly weakened the euro against the US dollar, making exports from the euro-zone more competitive.
However, what the FT describes as “the low-interest rate environment” is contributing to a “worrying” volatility in bond markets and has led to the cost of funding employer pension schemes rising rapidly, thereby affecting some companies’ balance sheets.
Commenting on the quantitative-easing policy, Bernd Scheifele, chief executive of Heidelberg Cement (the world’s third-largest cement producer by sales), said: “In the long run, we are concerned that ‘cheap money’ will reduce the competitiveness of European industry vis-à-vis Asian and US competitors. Cheap money obviously makes life easier, but that’s not good. I’m concerned that this could lead to another bubble.”
Earlier this month, German Chancellor Angela Merkel defended the ECB to a group of German business leaders: “At the very least, I’d like to ask for your understanding that central banks, like the ECB, must think about what to do if the inflation rate is so low and ensure that we don’t end up in a deflationary cycle.”