ECB’s Holzmann: To Discuss Ending PEPP Reinvestments at Next Governing Council Meetings

3 October 2023

By David Barwick – FRANKFURT (Econostream) – The European Central Bank Governing Council will devote part of its next meetings to discussing an end to the reinvestment of assets purchased under the ECB’s pandemic emergency purchase programme (PEPP), Council member Robert Holzmann said Monday.

In an interview with German weekly business news magazine Wirtschaftswoche, Holzmann said, ‘In the current situation, we need to think about ending our crisis-era measures more quickly.’

The complete cessation of purchases under the asset purchase programme (APP) ‘was a huge step’, he said. ‘However, with the pandemic emergency purchase programme, we have decided not to stop replacing expiring bonds with new ones until the end of 2024. We should discuss ending replacement purchases sooner. This is a very, very important point.’

‘We haven't talked about it yet’, so that that how quickly this should occur was ‘still completely open’, he said. ‘This will be part of the discussions at the next Council meetings.’

The flexibility of the PEPP was ‘not easy to give up’, he conceded. ‘The question is how to reduce replacement purchases while maintaining flexibility. This is a technical problem. Our experts who deal with the market will make suggestions. We will then discuss this in the Council.’

The 14 September rate hike was ‘absolutely necessary’, given the ‘very high’ likelihood of a renewed rise in inflation, he said. ‘Stopping now would not have been a good idea - despite the risk of recession, which we take very, very seriously.’

‘If necessary, there will certainly be further interest rate increases, even if they are not popular’, he added.

Reasons to think inflation would resurge included energy prices, which would climb further, and the threat of food shortages, he said. ‘We also have to be vigilant because we see second-round effects for Germany and Austria.’

Holzmann rejected the idea that monetary authorities should worry about a possible German recession.

‘Our focus is on inflation, we have to accept what happens to output’, he argued. ‘If production capacities are not sufficiently utilized, this is not an economic problem, but rather a socio-political problem. However, unemployment is currently not worryingly high in either Germany or Austria.’