ECB’s Schnabel: ECB Independence Not Compromised by Asset Buys

10 October 2020

By David Barwick – FRANKFURT (EconoStream) – The government debt increases due to the pandemic across the euro area won’t lead to fiscal dominance over monetary policy and represent no threat to the European Central Bank’s independence, ECB Executive Board member Isabel Schnabel said Saturday.

In an opinion piece for German daily Frankfurter Allgemeine Zeitung, Schnabel wrote that concerns about the potential impact of rising public debt on the ECB ‘don’t stand up to the facts.’ Neither is the ECB keeping borrowing costs low to facilitate the financing of sovereign debt, nor have the asset purchases of the ECB incapacitated price discovery, she asserted.

‘The ECB gears its monetary policy to its price stability mandate, not to the indebtedness of Member States’, she said. Empirical research fails to substantiate the notion that ballooning sovereign debt impairs central bank independence, she said.

Indeed, higher government debt now would secure the ECB’s autonomy in the longer term, she affirmed, because of the increased influence of fiscal policy in the low interest rate environment.

‘The decisive fiscal policy intervention in the coronavirus … crisis strengthens the effectiveness of monetary policy and mitigates the long-term costs of the pandemic’, she explained. ‘With targeted, forward-looking investment, not least under the umbrella of the EU Recovery Fund, governments can foster sustainable growth, increase long-term competitiveness and facilitate the necessary reduction of the debt ratio once the crisis has been overcome.

‘This would also afford the ECB more room for manoeuvre in the future, which would even strengthen its independence’, she added.