ECB's `Aggressive' Stimulus Policy Criticized by Danish Minister

(Bloomberg) -- Denmark’s government is wondering how much longer the economy will be exposed to the distortions wrought by negative interest rates, and is urging European Union leaders to enter a debate on the appropriateness of the current monetary policy environment.

The country, which has lived with negative rates longer than any other, has been forced to keep its main monetary policy instrument below zero for half a decade to protect the krone’s peg to the euro. Danish rates first went negative in mid-2012, and most economists expect the policy to persist until 2020.

The obvious risk is “price pressure that can lead to bubbles,” Danish Finance Minister Kristian Jensen said in an interview in Copenhagen on Wednesday. “We’re in a situation where our economic upswing has been under way for a while longer than in many other EU countries.”

ECB's `Aggressive' Stimulus Policy Criticized by Danish Minister

“We would definitely be positive if the ECB would ease up on the very aggressive monetary policy it has right now,” Jensen said. “The buying of bonds is very aggressive in my view, especially looking at the condition of the European economy.”

“Right now, I don’t think the low rates are the right medicine for a long-term positive development,” Jensen said.

For Denmark, the monetary climate has pushed the economy to the limits of its capacity utilization. “We’re now facing a labor shortage, with more firms ready to hire than there are people willing to work,” he said. “That means we need a situation in which there’s less heat coming from monetary stimulus.”

Jensen says Denmark is now taking the opportunities available to it to raise these concerns with EU leaders. “There’s a growing number of EU countries that have emerged from the crisis, so these very low rates aren’t needed any more, the upswing is stable,” Jensen said.

“France is making sweeping reforms now, and Spain’s elevated itself markedly since last year. There’s a lot of countries doing a lot better and therefore we ought to see a normalization of monetary policy,” he said.

Denmark can’t exit its extreme monetary policy alone, because of the euro peg. Its main deposit rate is minus 0.65 percent, compared with the ECB’s deposit rate of minus 0.4 percent.

The distortions coming from extreme negative rates include an overheated property market, with the government recently taking measures to prevent Denmark’s most indebted households from borrowing more. The country’s biggest banks have warned that households are growing “blind” to the risk of rates ever going positive again.

Jensen says the era of extremely low rates, globally, is one of the reasons something like bitcoin can suddenly flourish.

“There’s no doubt that a part of bitcoin’s popularity stems from people looking for alternative investments, because the returns on other investments are so low,” he said.

While the Danish government has taken several steps to ensure consumers are protected from bubbles in the housing market, Jensen signaled he has little inclination to stop people experimenting with cryptocurrencies.

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“People have to decide for themselves what to make of bitcoin,” he said.

©2017 Bloomberg L.P.