ECB: Tapering debate around the corner

As expected, today’s ECB Council meeting was a non-event. The substantially improved economic data of late and the higher December inflation figure in the eurozone offered no grounds to put the recently extended bond purchasing program up for discussion again. But the ECB will doubtless be faced with a tapering debate prior to the March meeting.

The ECB has always underscored its flexibility with regard to bond purchases and stressed its readiness to expand them further should circumstances require. However, it is just as important to reduce bond purchases more quickly if the economy performs better and the objectives are within reach. Central bank policy acts with a long time lag. Measures taken today can still be being felt in one, two years. For this reason the ECB should already start thinking about reining in its bond purchases at its March meeting. Uncertainties surrounding the outcome of the French elections are not a monetary policy issue and should not prompt the ECB to dally.

The side effects of expansionary monetary policy should be viewed as economic costs and are not given sufficient consideration in the central bank’s decisions. We are talking about a real erosion of savers’ assets (and corresponding gains for the state), gaping holes in funded pension systems, negative consequences for the distribution of wealth and heightened risk appetite on the financial markets.

Today’s meeting produced little new for price formation on the capital market. But when tapering is discussed at a later point, capital market yields will rise and investors will withdraw capital from risky markets. An exit from the crisis mode of recent years will not be risk-free. But the economy is now stable enough to cope with temporary setbacks on the capital market.


Michael Heise

Allianz SE
Phone +49.89.3800-16143

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