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The ECB's accommodative monetary policy may create new financial bubbles, which could eventually lead to a new crisis. cause. ECB Executive Board member Yves Mersch said this on Monday during a speech in his home country of Luxembourg. He warns that the central bank's creditworthiness could be jeopardized by persistently low interest rates. Especially now that monetary policy is slowly shifting to the fiscal domain.
"These unusual times call for heightened vigilance regarding the impact our monetary policy is having on financial stability. There is no clear dividing line between the pursuit of monetary stability and medium-term financial stability. A prolonged loss of confidence in the ECB undermines the broad public support necessary for central bank independence. This is a particular concern when unconventional measures bring monetary policy closer to fiscal policy."
With its bond-buying programme, the ECB has created new bubbles, including in equity and bond markets. Also, the prices of real estate have risen sharply in many European countries due to low interest rates. Despite this, the central bank announced in September a New buy-back program official inflation remained below target. The ECB now wants to explore how it can further increase the effectiveness of its monetary policy.
At the end of last year, the central bank warned in its Financial Stability Review of possible market corrections, for example in real estate markets. The report also pointed to the negative effects of interest rate policy on banks in the Eurozone. Banks nowadays pay the central bank to store savings, which puts pressure on profitability. Banks in the Eurozone have already brought a total of more than €20 billion in penalty interest to the ECB.
Mersch warned of a dangerous divergence between support for the euro and confidence in the ECB. Polls show that confidence in the single currency has risen sharply in recent years, while confidence in the central bank is declining. The latest buyback program caused a flood of criticism. Not only in public opinion, but also in the circle of central bankers.
Klaas Knot, president of the Dutch Central Bank, spoke a day after the decision displeasure on the buy-back programme. Not much later, a Open Letter, in which several central bankers razed the ECB's monetary policy to the ground. It is striking that an active board member is now also warning about the consequences of the policy.
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