GERMANY: ECB warns on distorting scrappage schemes
The European Central Bank (ECB) has warned in its monthly report that national car scrappage schemes designed to support the car industry bring little net benefit and may 'delay necessary structural change'.
It says the upward impact on overall euro area activity in 2009 is likely to remain rather limited and may turn negative in 2010.
The ECB says that given their distortionary effects, such measures should be implemented with caution, as they 'may hamper the efficiency of the functioning of a free market economy and may delay necessary structural change, thereby undermining overall income and employment prospects in the longer term'.
It added that in surveys for Germany, around half of the respondents report that they have brought forward car purchases into 2009 owing to the premium. In such a case, a substantial weakening of car demand might be expected in early 2010, the ECB warns.
The ECB also pointed out that the lowered the average age of the car fleet could store up problems for the future as 'an adverse effect on new car demand will also prevail in the medium term'.
In addition, it says, if private households reduced their savings or increased their borrowing to finance their new car purchases, a negative impact on future overall private consumption growth can be expected to the extent that private households need to reduce their borrowing and increase savings again.