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ECB Bonds: An Instrument in Times of Inflation and for State Financing

In: European Union and Monetary Union in Permanent Crisis II

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  • Dirk Meyer

    (Helmut-Schmidt-Universität)

Abstract

In response to the Covid crisis, the eurosystem central banks have further increased their bond purchases under the APP (Asset Purchase Programme) and extended them to the PEPP (Pandemic Emergency Purchase Programme). However, this additional liquidity, created in combination with other measures of “exceptional monetary policy”, would have to be reduced if inflationary pressures persisted. A comprehensive sale of bond holdings would be a logical way to neutralize this on the way. However, the resulting price losses led to instability in the financial sector, particularly in crisis countries, and to problematic interest rate increases on government bonds. The article analyses the alternative possibility of the ECB issuing bonds for the purpose of liquidity absorption. Based on the legal framework and the experience of other central banks, the possible opportunities and risks of “ECB bonds” are examined.

Suggested Citation

  • Dirk Meyer, 2022. "ECB Bonds: An Instrument in Times of Inflation and for State Financing," Springer Books, in: European Union and Monetary Union in Permanent Crisis II, chapter 0, pages 145-182, Springer.
    • Handle: RePEc:spr:sprchp:978-3-658-38646-7_8
    DOI: 10.1007/978-3-658-38646-7_8
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