Report
Patrick Artus

Will the ECB really try to reduce the size of its balance sheet after the crisis?

This question is hugely important. Government bonds irreversibly bought by the ECB are de facto cancelled. If the ECB committed today to never reducing the size of its balance sheet in the future, all government bonds that it holds could be considered cancelled and no longer feature in any assessment of countries’ fiscal solvency. This is made clear if one considers a consolidated balance sheet of the government and the central bank. But can we be certain that the ECB will not try to reduce the size of its balance sheet in the future if the economy improves, if inflation picks up, or to show that it is not definitively monetising public debt? What we can say is that: Since 2015, the ECB has never tried to reduce the size of its balance sheet; In all likelihood, such a reduction would give rise to a dangerous increase in peripheral country interest rates; When the Federal Reserve tried to reduce the size of its balance sheet, it quickly had to backtrack.
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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