Political games of the ECB

Ivo Arnold, Vice Dean and Professor of Economic Education at Erasmus School of Economics
Erasmus School of Economics

Ivo Arnold, Professor of Monetary Economics at Erasmus School of Economics, was featured in an EW article. The central issue is the ECB's political policy and how it came about.

Over the years of its inception, the ECB has helped governments several times by buying up bonds, for instance. Currently, the ECB faces a dichotomy whether to raise interest rates extremely or not. The euro is a fragile currency, so the question is how the ECB should act here. After all, either option will harm groups. 

One of the ECB's actions was the Assets Purchase-Programme (APP), where the ECB bought 3,300 billion euros of government bonds. In terms of macroeconomic arguments, Arnold agreed with this programme. However, he did say that the ECB went on too long, making bond buying too regular a tool. This was again evident with the next programme, the Pandemic Emergency Purchase-Programme (PEPP), which launched in 2020. 

The most recent development is the Transmission Protection Instrument (TPI), if the ECB now judges that investors are wrongfully speculating against a euro country, the bank can pre-emptively buy up government bonds. However, Arnold, among others, warns that this increasingly puts the ECB in the political chair. Indeed, some situations in the bond market are caused by politics, something the ECB would then have to decide on now. Despite high inflation, things currently seem calm around the euro and European capital markets. However, we should realise that a euro crisis is never far away. However, we could be better prepared now.

Ivo Arnold, Professor of Monetary Economics at Erasmus School of Economics
More information

You can download the full article from EW, 22 May 2024, above.

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