With the ECB's quantitative easing programme putting upward pressure on German asset prices in particular, some point to a risk of bubbles developing there.
"We think the greater risk is that such concerns may place limits on the policy support that is sorely needed elsewhere in the euro-zone." - said Capital Economics
Germany has made no secret of its discomfort with ultra-loose monetary policy. But comments from the authorities have taken a more alarmist tone recently, with Finance Minister Wolfgang Schäuble stating that "we have an interest rate environment that is causing huge problems for Germany" and Bundesbank President Jens Weidmann warning of "signs of speculative excesses on asset markets".
Their concerns seem justified. Bund yields have dropped such that around 60% now trade in negative territory. The DAX equity price index has risen by 26% since the start of the year to a record high. House prices are rising, particularly in German cities. And German consumers have become uncharacteristically spendthrift, with retail sales volumes up 3.6% in the year to February.
"But we think that talk of bubbles is overblown. Lending rates in the real economy have not dropped as sharply as Bund yields, with the rate on 1-5 year corporate loans, for example, at 3%. There has been no surge in bank lending - loans to the private sector were up less than 2% in the year to February. We suspect that Bund yields will rise later this year as policy tightening boosts US Treasury yields. And ECB QE itself should start to push up Bund yields at some point." - adds Capital Economics
