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  • INTERVIEW

Q&A on Twitter

Interview on Twitter with Isabel Schnabel, Member of the Executive Board of the ECB, conducted and published on 28 April 2021

28 April 2021

Hello, this is @Isabel_Schnabel, Executive Board member at the ECB. I’m looking forward to answering your questions for the next 45 minutes or so. Join the conversation! #AskECB

Does the ECB, like the Bank of China, also plan to conduct climate stress tests in the financial sector in the future to expand the tools for risk analysis in the area of green monetary policy? What further measures are planned here? #AskECB

@Isabel_Schnabel: The ECB is currently implementing an economy-wide climate stress test to analyse the vulnerability of firms and euro area banks to physical and transition risks. The potential impact on the portfolios of non-banks will also be considered. #AskECB. #AskECB

To find out more about the ECB’s economy-wide climate stress test, please refer to a recent article by our Vice President Luis de Guindos published on the ECB blog: https://www.ecb.europa.eu/press/blog/date/2021/html/ecb.blog210318~3bbc68ffc5.en.html

What is the "monthly reference" amount for the PEPP decided on 11 March? Or As we all acknowledge that the @ecb had flexibility under this amount and that it can change it at any time as needed, why not simply disclosing this monthly ‘target’?

@Isabel_Schnabel: Preserving favourable financing conditions shifts the focus from quantities to prices – the conditions at which sovereigns, firms & households can receive funding. Monthly volumes vary, as we continue to buy flexibly according to market conditions. #AskECB

What’s the reason not to cancel the debt that ECB has bought through QE, given that central banks create money out of thin air? #askECB

@Isabel_Schnabel: Debt cancellation is not an option. It would constitute monetary financing and violate the Treaties. It would also call into question the ECB’s commitment to its price stability mandate and undermine the rule of law and the independence of the ECB. #AskECB

#AskECB what is ECB's view on the rising housing costs?

@Isabel_Schnabel: Rising housing costs are a burden for many people and may give rise to financial stability risks. In our #strategyreview we discuss how to better capture housing costs in our inflation measure. But we do not target asset prices. #AskECB

What the @ecb is thinking about the call of cancellation of national debts? #AskECB

@Isabel_Schnabel: A cancellation of national debts would constitute a clear violation of the European Treaties. The debate is harmful and should be stopped. #AskECB

#AskECB Isabel, Have TLTRO programs served purpose of reviving real economy or creating asset bubbles as some funds have gone to financial markets enabling buybacks and higher stock prices

@Isabel_Schnabel: Our targeted longer-term refinancing operations (TLTROs) have been crucial in supporting bank lending to households and firms. This has helped to avoid a credit crunch at the height of the pandemic. #AskECB

Is it what happened in the first few weeks of April? #AskECB

@Isabel_Schnabel: The weekly change in the Eurosystem’s PEPP holdings (at amortised cost) at the beginning of April was affected by redemptions, the reduced number of trading & settlement days due to the Easter holidays and the quarter-end amortisation adjustment. #AskECB

#AskECB is the ECB concerned about the profitability of the banking sector especially in Germany and about the diminishing relevance of European banks in the world?

@Isabel_Schnabel: The low profitability of euro area banks, also compared to global competitors, has been a reason for concern for quite some time. That’s why bank profitability is one of the key priorities for our banking supervisors in 2021: https://bankingsupervision.europa.eu/banking/priorities/priorities/html/index.en.html #AskECB

#AskECB @Isabel_Schnabel if there is currently no incentive to save with EUR (negative interest rates and shrinkage of purchasing power), what is your suggestion to the problem?

No Savings at all? Just finance everything out of Credit? Accumulation of assets for saving reason?

@Isabel_Schnabel: Even in a low interest rate environment saving is needed to transfer income to the future. What matters are real not nominal interest rates. Ideally savings are diversified across different asset classes according to individual risk preferences. #AskECB

#AskECB Who, which entity, that is democratically-accountable and subject to the will of actual voters, controls, and may sanction, the actions and decisions of the ECB?

@Isabel_Schnabel: We are accountable to all European citizens through the European Parliament. The President and other Executive Board members regularly participate in public hearings and explain the ECB’s policies to EU parliamentarians and the public. #AskECB

If you want to find out more, have a look at our explainer on accountability: https://www.ecb.europa.eu/explainers/tell-me/html/about-ecb-accountability.en.html

According to a recent speech by an ECB official, PEPP purchases could be scaled down : if it were to occur, could other parameters of the programme be adjusted accordingly (e.g. reinvestment horizon, WAM of the purchases). Thank you #AskECB

@Isabel_Schnabel: PEPP was designed to deal with the pandemic and its duration is linked to the pandemic crisis phase. We are free to adjust any parameters of the programme at any point in time if required to fulfil our price stability mandate. #AskECB

The Apr BLS shows again a tightening of credit standards in Q2 after a few quarters of tightening. Are you concerned about this and do you believe additional TLTROs operations into 2022 could change this picture? #AskECB

@Isabel_Schnabel: Bank lending rates remain near historically low levels, while the most recent bank lending survey showed a further tightening in credit standards, but more moderately than in previous survey rounds. We are carefully monitoring bank lending conditions.#AskECB

How does the @ecb react to a scenario where inflation is near-target but growth remains slow?E.g. the emergence of supply-side inflation from bottlenecks (supply chain disruption/ delays) + geopolitical risk (production onshoring). #askecb @Isabel_Schnabel

@Isabel_Schnabel: Our inflation aim is defined over the medium term. This gives us flexibility to deal with supply-side shocks like temporary bottlenecks. Our current forecast suggests that inflation remains subdued over the projection horizon: https://ecb.europa.eu/pub/projections/html/index.en.html #AskECB

#AskECB: some increase in real yields seems to be warranted if the recovery is happening as projected - how much would be in line with your tolerance and would you increase PEPP if the yld increase exceeds the range you'd tolerate

@Isabel_Schnabel: Theoretically this depends on how real interest rates compare to real equilibrium rates. In practice this has to be judged in light of current and expected economic and inflation developments. The envelope may not be used in full or expanded as needed. #AskECB

#AskECB @Isabel_Schnabel Are there any side-effects of the #ECB’s monetary policy? E.g. asset price inflation? What is the impact on #inequality? Are we getting closer to bubble territory? See e.g. #Bitcoin, #Dogecoin, #SPACs

@Isabel_Schnabel: Any policy measure is subject to side effects, monetary policy is no exception. We assess the proportionality of our measures by weighing their benefits and costs. Side effects like financial instability and inequality are important parts of that. #AskECB

#AskECB is the ECB taking into account asset prices when setting its monetary policy instruments?

@Isabel_Schnabel: Financial stability is a prerequisite for price stability and is related to our primary mandate. Therefore we carefully monitor the build-up of risks in the financial sector. Overvalued asset prices are one aspect, but we do not target asset prices. #AskECB

Does the ECB take into the count the posibility that other Central Banks begin the tapering sooner that expected because the speed of the recovery is started to accelerate in some countries? #AskECB

@Isabel_Schnabel: Our monetary policy depends on economic conditions in the euro area and, in particular, on our medium-term inflation outlook. Business cycles vary across countries around the world, and so does monetary policy. #AskECB

Could the phasing out of the PEPP in 2022 come along with a recalibration of the APP (greater flexibility) and TLTROs (longer maturities and discount period)? #AskECB

@Isabel_Schnabel: We will have to carefully manage the transition from the pandemic to the post-pandemic period. This may include a recalibration of our regular tools and will take into account the outcome of our monetary policy #strategyreview. #AskECB

#AskECB how do you see your role regarding consumption promoting policy and consumptions catalyzing effect on carbon emissions?

Your real mean of power is monetary policy. Current situation, you may be wrongly assesing cost of long term stability compared to short term stability

@Isabel_Schnabel: The ECB’s primary mandate is price stability. Physical and transition risks from climate change may affect price stability, which should be taken into account in our monetary policy. How this can be done is discussed in our ongoing. #strategyreview #AskECB

The ECB has missed the inflation target for years, by nearly 1% for at least 10 years. Would you accept to overshoot by 1% in the next 10 years?

@Isabel_Schnabel: Our medium-term inflation aim is symmetric: we counter deviations to the upside and to the downside equally. We are currently reviewing our price stability objective in our #strategyreview, which will also address the question of overshooting. #AskECB

How can you retain any credibility when you’ve kept negative interest rates for 6 years, continue to expand QE, deny inflation then say you need to do more? It’s a busted flush

@Isabel_Schnabel: The best measure of our credibility is price stability. The euro has been very stable since its inception. Due to disinflationary shocks, including severe crises, inflation has fallen below our aim. But it would be even lower without our measures. #AskECB

Will EU non-member states ever be able to adopt the euro as their primary currency and sole legal tender?

@Isabel_Schnabel: EU membership is a key prerequisite. But there are exceptions. The euro is also used outside the European Union and beyond the European continent. You can find the full list and the specific reasons in our explainer: https://ecb.europa.eu/explainers/show-me/html/euro_outside_europe.en.html. #AskECB

with excess liquidity at record levels above 4 trn euros, banks are beginning to transfer costs to their clients. Is the ECB considering further measures against this, and is a change in the tiering sistem under consideration? @Isabel_Schnabel #AskECB

@Isabel_Schnabel: The two-tier system has been successful in alleviating the side effects from negative interest rates for banks. If we were to observe risks to the bank-based monetary transmission from rising excess liquidity, the tiering multiplier could be adjusted. #AskECB

What is the intrinsic value of the Euro? #AskECB

@Isabel_Schnabel: The intrinsic value of the euro depends on its purchasing power. This is ensured by the ECB, which is independent & bound by its price stability mandate. The Eurobarometer shows record levels of support for the euro. Moreover the euro is legal tender. #AskECB

If you want to find out more about the support for the euro, please refer to the latest Eurobarometer publication: https://europa.eu/eurobarometer/surveys/detail/2355

To what extent are other G10 central bank actions (e.g., BOC tapering, UK monetary/fiscal coordination, Fed’s AIT framework, BOJ’s equity ETF purchases, etc.) influencing ECB policy and/or the ECB strategy review? #AskECB

@Isabel_Schnabel: We conduct our monetary policy on the basis of domestic economic conditions. But the international financial and economic system is highly integrated, which implies spillovers of monetary and fiscal policy, for example through global growt. #AskECB

Why considers the ECB the climate to their monetary mandate? #AskECB

@Isabel_Schnabel: Since climate change affects price stability through physical & transition risks, we must take it into account under our primary mandate. Without prejudice to our price stability objective, we are also obliged to support general EU economic policies. #AskECB

#AskECB Fed Chair Powell personally owns $42m in stocks and bonds (per US regulatory ethics disclosures), which many believe is a direct conflict of interest. Does the ECB also have ethics disclosures publically available, showing the Executive Board members' financial assets?

@Isabel_Schnabel: The ECB indeed has strict compliance rules, which limit the Governing Council members’ ability to hold and trade financial assets and require them to annually publish their financial holdings. #AskECB

Please see the following page for our most recent declarations of interest: https://ecb.europa.eu/ecb/access_to_documents/document/declarations/shared/pdf/ecb.dr.dec210322_declarations_of_interest.en.pdf?ca0b3c64595c06b79644a9c1b5d6fe30

#AskECB dear Ms Schnabel, how can the ecb be credible saying it expects a significant increase in monthly net PEPP purchases in the quarter following the mid March meeting, when in fact there has only been one credible step up in the pace in the last week but nothing huge

@Isabel_Schnabel: This is a misperception. As announced, we have significantly stepped up monthly net asset purchases under the PEPP. Due to reasons explained in a recent Twitter thread, this is not always visible in the weekly numbers. #AskECB

#AskECB One more question. Am i right that #ECB #FED #lagarde #JPOW still does not see any signs of #inflation?

@Isabel_Schnabel: Price changes of particular goods are not the same as general inflation. We are currently seeing price increases for some goods, like lumber, which may eventually be transmitted to consumer prices, depending on their weight in the consumption basket. #AskECB

#AskECB @Isabel_Schnabel Aren’t we in a liquidity trap? What than is the purpose of the #ECB’s monetary policy? To keep treasury yields low (#FinancialRepresson) and spreads tight?

@Isabel_Schnabel: We expect a rebound of the economy in H2 2021 when containment measures are lifted & large parts of the population are vaccinated. But inflation is currently projected to remain low in the medium term, which justifies our highly accommodative stance. #AskECB

#AskECB Wie lange sollen die Minuszinsen noch laufen? Wer zahlt all diese Schulden? Wann heben Sie die Zinsen wieder an, siehe Kanada? Was raten Sie Sparern? Wie soll man Altersvorsorge betreiben?

@Isabel_Schnabel: The inflation outlook is still well below our inflation aim of below but close to 2%. Monetary policy has to remain accommodative, including very low interest rates, to get the economy back on track, in line with our price stability mandate. #AskECB

#AskECB Most people would think an inflation target of close to but below 2% as not symmetrical. Moreover that target has been in operation for twenty years and given it is rarely if ever met why not change it to say 1.5%?

@Isabel_Schnabel: Our introductory statements clearly state that our inflation aim is symmetric. Lowering the inflation aim would carry the risk of hitting the effective lower bound more frequently. The definition of price stability is discussed in our #strategyreview.#AskECB

#AskECB Dear @Isabel_Schnabel, Here is GDP for #JP in USD. Since they implemented QEs & low rates in the 90s, it stopped growing. How, by applying the same recipes, #EU could have another outcome? Isn't time to move money from Markets to the economy?

@Isabel_Schnabel: Asset purchases, low interest rates and bank refinancing operations support favourable financing conditions for households, firms and the government across the euro area. Without these measures, the outlook for growth and inflation would be worse. #AskECB

Do you consider to use a more meaningful formula to measure inflation anytime soon? Your CPI is manipulated and everyone that has seen a supermarket from inside knows that. #askecb

@Isabel_Schnabel: The HICP is calculated independently by Eurostat, not the ECB. It reflects actual consumption patterns. The prices of products from the supermarket do not reflect our full consumption basket, which also includes rents, services or electronic products. #AskECB

Would it be a trade-off for monetary policy if the inflation rate will overshoot its target probably this year or next year, while the economic recovery is not that robust? #AskECB

@Isabel_Schnabel: Our focus is on medium-term price stability. Current inflation developments show substantial volatility due to various one-off and temporary effects. We look through such short-term developments. #AskECB

#AskECB what is your advice to women interested in pursuing a career as an executive or non-exec board member at ECB?

@Isabel_Schnabel: The ECB aims at improving gender equality at all levels. Therefore we recently set new ambitious gender targets and have implemented numerous measures to increase diversity, including but not only related to gender equality. So please apply to the ECB! #AskECB

#askecb When is the Digital Euro coming ?

@Isabel_Schnabel: This summer the Governing Council of the ECB will decide whether to launch an investigation on the digital euro. After that, we will take the decision whether to launch a digital euro. The implementation would take several years. #AskECB

#AskECB The m3/GDP ratio has gone up from mid 70% at the beginning of this century to currently way over 100% What would be an about right ratio or range? What has that range historically been?

@Isabel_Schnabel: Our monetary policy is guided by our price stability objective. Over the past decades, the relationship between monetary aggregates and inflation has weakened. Therefore, our monetary analysis has put a stronger focus on monetary transmission. #AskECB

Why do i have to pay taxes when we can just print money? #AskECB

@Isabel_Schnabel: Taxes are a means to finance the activities of the government. According to Article 123 of the EU Treaty, there is a prohibition of monetary financing of governments by the ECB. #AskECB

#AskECB Let's imagine food inflation is going out of control so consumer spending will crash and stagflationary environment arrives. Does it mean CPI will show inflation or deflation? as spending for consumer goods is removed. How ECB can deal with such environment?

@Isabel_Schnabel: Food accounts for a large share of the consumption basket. Spikes in food inflation thus push up overall inflation. HICP weights are adjusted on an annual basis by Eurostat to reflect shifts in consumption. We look through short-term volatility. #AskECB

You can find out more about changes in consumption patterns during the COVID-19 pandemic in our Economic Bulletin: https://www.ecb.europa.eu/pub/economic-bulletin/focus/2020/html/ecb.ebbox202007_03~e4d32ee4e7.en.html

Why don’t we let natural deflationary forces in western democracies happen due to demographics, debt, technology and globalization? Why aren’t prices allowed to fall? Is it bad when free market prices fall and create a natural equilibrium through supply and demand? #AskECB

@Isabel_Schnabel: Most economists agree that deflation has worse economic consequences than small positive inflation. It leads to a deepening of recessions when agents postpone consumption & investment in expectation of falling prices resulting in a deflationary spiral. #AskECB

Dear Ms @Isabel_Schnabel, why does the ECB not ask independent economic scholars and other academics to judge its strategy review of monetary policy of the last 10 years, instead of conducting that review itself? #AskECB

@Isabel_Schnabel: We have indeed involved academics in our strategy review process through an Academic Roundtable and through our annual ECB Forum on Central Banking (“Sintra”). We have also had numerous informal exchanges with economists from all over the world. #AskECB

#AskECB Hello! We're organizing citizens panels about the ECB strategy review in France, Germany, Netherlands, Spain and Italy. Will you accept to meet with randomly selected citizens at the end fo the process, and take their recommendations into consideration?

@Isabel_Schnabel: Your initiative is very welcome. We have conducted numerous listening events ourselves and will continue to do so. The feedback from citizens is one important input into our strategy review. #AskECB

Time to wrap up. Thanks a lot for your questions – I really enjoyed the chat and look forward to doing it again soon. Take care! #AskECB

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