ECB’s Nagel: Must Continue Balance Sheet Runoff to Preserve Policy Flexibility

12 February 2026

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Joachim Nagel said on Thursday that the ECB should press ahead with reducing its balance sheet to rebuild policy space and be better prepared for unexpected shocks.

In a speech at the Euro50 Group meeting in London, Nagel, who heads the Deutsche Bundesbank, said that it was important for the ECB to be “able to respond to new shocks in an agile way” because geopolitical and economic fragmentation could generate volatility in inflation.

Nagel referred to the ECB’s latest strategy review, noting that it reinforced the symmetric nature of the inflation target and responded to criticism that the ECB’s framework had previously placed greater weight on undershooting inflation.

“Last but not least, I believe it is crucial that we continue to reduce our balance sheet size since that increases leeway to take monetary policy action in unexpected scenarios,” he said.

Putting more emphasis on multiple scenario analyses — one of the key takeaways from the latest strategy review — would allow the ECB to assess risks and uncertainty in a more comprehensive and systematic way, he said.

On central bank independence, Nagel said that rising geopolitical competition between countries could increase pressure on central banks to support fiscal objectives, potentially undermining their price stability mandate.

“Since the world economy is interconnected, political pressure in one country could make pursuing price stability more difficult for the Eurosystem as well,” he said. “That is one of the reasons why, for me, it is so important to clearly commit to the independence of central banks.

The ECB would always “remain vigilant” about its own independence, he said.