Bundesbank president Jens Weidmann has rebuked German politicians for attempting to pressure European Central Bank chief Mario Draghi over his easy money policies, suggesting their criticism was interfering with the bank's independence.
"It's not unusual for politicians to have opinions on monetary policy, but we are independent," Mr Weidmann told the Financial Times last Thursday. "The ECB has to deliver on its price stability mandate and thus an expansionary monetary policy stance is appropriate at this juncture regardless of different views about specific measures."
The head of Germany's central bank and his counterpart at the ECB have often been at odds over how to respond to the threat of falling prices, with Mr Weidmann frequently raising objections to measures tabled by Mr Draghi.
But they have emerged as unlikely allies at a time when monetary policymakers around the world are facing mounting criticism over record-low interest rates, including the decision by some central banks — among them the ECB — to cut rates below zero and into negative territory to counter the threat of a vicious bout of deflation.
The policy has been deeply unpopular in Germany, prompting criticism from senior politicians, led by finance minister Wolfgang Schäuble, that the central bank's low interest rates are expropriating savings from the German public and fuelling the rise of rightwing populism.
While the ECB targets inflation of just below 2 per cent, the latest reading was minus 0.1 per cent. Mr Weidmann also said the German debate on the ECB is focused too narrowly on the consequences of low interest rates for savers.
"The debate does not focus enough on the broader macroeconomic consequences of monetary policy. People are not just savers: they're also employees, taxpayers, and debtors, as such benefiting from the low level of interest rates," he explained.
The Bundesbank built its reputation on its independence from politics, frequently falling out with German lawmakers in the 1970s and 1980s over the central bank's use of high interest rates to tackle inflation.
But Mr Weidmann faces a more sensitive challenge: defending an EU institution from criticism from within Germany at a time of acute unease fuelled by the refugee crisis.
German politicians have responded to the recent rise of the rightwing Alternative for Germany, or AfD party, which scored big gains in regional polls last month, by blaming its success partly on the ECB's easy money policies.
While the AfD has focused on opposing Chancellor Angela Merkel's open-door refugee policy, it has also won backing for criticising the ECB.
Ms Merkel, who has fallen out with Mr Draghi, has so far kept her own counsel during this latest escalation of tensions. But the German chancellor's more combative finance minister Mr Schäuble last week pinned half of the blame for the AfD's rise on Mr Draghi. His concerns are widely shared in Ms Merkel's conservative CDU/CSU bloc.
The ECB cut all of its benchmark interest rates to record lows last month and now has a deposit rate of minus 0.4 per cent. Hardly any bank in the eurozone has passed this on to private customers, though some lenders have started to impose a charge on businesses' deposits. The ECB also upped by €20bn to €80bn the amount of mostly-government bonds it will buy each month under its quantitative easing package.
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The ECB unleashed the fresh stimulus to combat risks ranging from the China-led slowdown in emerging market economies to the slump in the price of oil. Speaking in his office at the Bundesbank's Frankfurt headquarters, a few miles north-west of the ECB, Mr Weidmann said the debate ahead of Britain's vote on whether to leave the EU had added to "the mood of uncertainty" within the bloc.
Uncertainty about the future of European integration, illustrated by the Brexit debate and the difficulties in finding a solution to the influx of refugees, could delay business investment both in the the UK and elsewhere. "The uncertainty adds more weight to the option of shelving plans for a later date," the Bundesbank president said.
Brexit could also fuel the current mood against more EU economic integration. "It could lead more people to ignore the very fundamental insight that, in a globalised world, the answer to the challenges is not more fragmentation," he said. "That doesn't mean you have to centralise everything. But in a union you have to seek joint solutions and ensure the liability principle."
While it would "not be a very smart move" for remaining members to punish a departing UK by erecting barriers to trade, the outcome of any post-Brexit negotiations would be political, and so very difficult to judge.
"When you follow some of the debates that are taking place in Europe and in other parts of the world these days, you have the feeling that, deplorably, a more inward-looking approach is often the response to the challenges of globalisation," Mr Weidmann said.
Plans to impose limitations on cash payments, as mooted by Mr Schäuble, and abolish the €500 note — a move favoured by some of the ECB's top officials — could further sour the public mood in Europe's largest economy. Many Germans fear there is a hidden agenda to abolish cash altogether.
"So far the evidence I've seen is not really convincing that the financing of terrorism or illegal activities can be countered by limiting cash payments or abolishing the €500 bill," Mr Weidmann said. "Even in the US, where the highest denomination is the $100 bill, some would like to see this note abolished. So there is no telling where this debate would end."The Bundesbank president downplayed tensions between the International Monetary Fund and other players in the Greek crisis, at odds over whether to haircut the member state's debt. While Berlin opposes further debt relief for Athens, the IMF favours it, and is considering leaving the rescue team if it does not get its way.
"The debt burden is less of an issue than the question of whether Greece is capable of achieving a sustainable fiscal surplus or of implementing the structural reforms necessary for growth," he said. "As long as the programme conditionality is not adhered to, debt relief will be of limited use: we would just end up in the same place in a couple of years' time."
The Bundesbank president indicated he wanted the IMF to remain involved in Greece's rehabilitation. "Who could take its place? It is complementing the other institutions involved and is perhaps less prone to political compromise."
While Mr Weidmann said the package of measures unveiled by the ECB in March should have been "less aggressive" and the Bundesbank president remains a critic of large-scale bond buying by the central bank, he defended the design of the quantitative easing package.
"Monetary policy always has redistributional effects. But if the perception is that fiscal risks in the euro area were redistributed through the Eurosystem's sovereign bond purchases, this could be seen as stretching the central bank's mandate," he said. "That's why the new asset purchase programme is less problematic than others before it — each national central bank in the euro area buys the sovereign debt of its own country at its own risk."
So-called helicopter money drops are more problematic.
"Some academics might find this instrument a thrilling possibility, but it should not be part of the policy debate. It would be a rather dangerous instrument," he said. "There would be consequences; it would rip a hole in our balance sheet. This would erode trust in our balance sheet and undermine the credibility of the central bank."
He added: "In the end, it completely blurs the boundaries between monetary policy and fiscal policy."