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Q&A on Twitter

Interview on Twitter with Isabel Schnabel, Member of the Executive Board of the ECB, conducted and published on 17 December 2020

18 December 2020

Good afternoon, this is @Isabel_Schnabel, Executive Board member @ecb. I’m looking forward to answer your questions for the next 45 minutes or so. Join the conversation! #AskECB

#AskECB Could you please summarise for someone without a formal education in economics: What functions does the ECB perform? How does the ECB affect the EU economy? What are the underlying economic principles that guide the ECB on its decisions?

Schnabel: The @ecb aims to avoid prices rising too fast or too slow so that consumers can rely on stable prices. In doing so, it helps the economy to recover from downturns & avoids the economy running hot. Decisions are based on our legal rules, economic analysis & data. #AskECB

Why the ECB decided not recalibrate the depo tiering system? Is still part of the tool kit?

Schnabel: The tiering system is working as intended, namely to preserve the accommodative impact of our negative interest rate policy while alleviating its most direct negative side effects for banks. We are continuously monitoring the development of excess liquidity. #AskECB

#AskECB How would developing a truly European safe asset help with the transmission of ECB monetary policy? Thank you @Isabel_Schnabel

Schnabel: Monetary policy in the euro area is complicated by the fact that there are 19 sovereign bond markets and that safe haven flows may cause fragmentation within the euro area. A European safe asset would mitigate such destabilising safe haven flows. #AskECB

The SNB just announced it will exclude all companies primarily active in coal mining from its portfolios. Does the ECB feel inspired? #AskECB

Schnabel: It is very encouraging to see that other central banks are taking action in the fight against climate change. The @ecb will discuss its own potential actions with respect to climate change in our monetary policy strategy review. #AskECB

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

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

What type of fiscal commitments would help the ECB in the short run and in the long run? are you worried about the impact of the current monetary stance on asset prices, incl house prices?

Schnabel: In the short run fiscal support must not be withdrawn prematurely. In the long run we need a debate about common fiscal instruments at European level and a reform of the fiscal framework. We are monitoring the impact of our policies on asset prices carefully. #AskECB

#AskECB @Isabel_Schnabel Why does the ECB keep trying to boost growth when it has not been working for years and its bond buying is misaligned with the Paris Agreement which the EU has signed.

Schnabel: Our monetary policy is effective. Economic growth & inflation would be lower without it. Green bonds are part of our portfolio and help to reduce the carbon footprint. We are reflecting more on climate issues with respect to our policies in the strategy review. #AskECB

What can the #ECB do for reducing our carbon footprint? Given the historic threat and thus our historic duty, what will you personally (as ECB exec board member) do? Thank you, @Isabel_Schnabel! #AskECB #ClimateChange

Schnabel: We are exploring how the @ecb can contribute to the fight against climate change within our mandate. I support this process in all relevant areas like economic modelling, risk assessment, disclosure, monetary policy operations and own investments. #AskECB

How prevalent is “group think” within the ECB and how is this avoided? And who leads who...the cb or the market as many previous episodes seem to suggest the latter? #askECB

Schnabel: Group think is best avoided by involving people from diverse backgrounds in our decision-making. The ECB benefits from having people from all over the euro area. Gender equality is also important, and we are actively pursuing gender equality. #AskECB

@Isabel_Schnabel Warum weicht die EZB bei ihrem PSPP- u. PEPP-Programm signifikant von dem Verteilungsschlüssel gemäß Art. 29 der ESZB-Satzung ab (insb. Italien und Spanien), ohne dies öffentlich zu machen? Ist das Ihre Vorstellung von Transparenz?

Schnabel: The allocation of public asset purchases is guided by the capital key. The PEPP allows for deviations to counter fragmentation in the euro area. All deviations under the PEPP/PSPP can be inferred from our website #AskECB

“When will the PEPP draw to a close?”

Schnabel: Currently it is foreseen that net purchases are conducted until at least March 2022 and reinvestments until end-2023. The duration of the PEPP will depend on the evolution of the pandemic and its consequences for the economic and inflation outlook. #AskECB

#AskECB Dear Isabel Are goals of ECB in confrontation with domestic fiscal policies of member nations as the stimulus might lead to lot deficits and debt for their economies

Schnabel: It is important that fiscal and monetary policies work hand in hand to overcome this deep crisis. The role of monetary policy is now to preserve favourable financing conditions and support the recovery. This will also improve the fiscal situation. #AskECB

How does ECB plan to reduce the risk of corporate zombification (apart from QE and QE's unintended consequences)?

Schnabel: Due to the specific character of this pandemic, the risk of zombification may be less pronounced than during other times. Please read my column with @laeven_luc & @gschepen, which proposes some policy measures #AskECB

#AskECB Are you concerned about the #Target2 imbalances? Thank you @Isabel_Schnabel #ECB

Schnabel: A predominant share of the increase in TARGET2 balances are a technical consequence of our asset purchases as these are often conducted through financial centres. We are therefore not concerned about the evolution of TARGET2 balances. #AskECB

Keeping the corona recession in mind, am i right in the assumption that the base rate (interest) will stay very low for the foreseeable future? #AskECB

Schnabel: The evolution of our policy rates depends on the inflation outlook, which is currently subdued. We expect rates to remain at present or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2%. #AskECB

Do you think in the next decade we will see a time when there is no ECB support to the banks?

Schnabel: In a bank-based economy like the euro area, banks are key for the transmission of our monetary policy to the real economy. Therefore, liquidity-providing measures are a standard monetary policy instrument to affect lending conditions and inflation. #AskECB

why not to include housing cost to the HICP basket as many other countries do - USA,UK etc ? #AskECB

Schnabel: The HICP, calculated independently by @EU_Eurostat@EU_Eurostat, already includes rents. In our strategy review we are currently looking into whether and how costs for owner-occupied housing could be included. The inclusion would have to be implemented by . #AskECB

#AskECB tell me your policies improved the life of European citizens, didn't create more inequalities and didn't contribute to the zombification of European economies.

Schnabel: Our policies have avoided an even deeper economic recession and a financial crisis. They have protected jobs, which helps to mitigate the increase in inequality, which may occur due to the pandemic. We helped viable firms to bridge the deep downturn. #AskECB

#AskECB Whenever you buy assets, does it occur to you that you are destroying the competition of the asset-holders? How can EU citizens run businesses that compete with the beneficiaries of unlimited free money?

Schnabel: Asset purchases benefit all sectors. Bond yields serve as the basis for all interest rates in the economy, including for bank lending rates paid by households and firms. #AskECB

#AskECB What problem(s) will the digital euro solve that can't be solved in existing monetary system or infrastructure? and why?

Schnabel: Preserving access to public money in a digital world is a priority to central banks. A digital euro can complement market-based payment systems and leave more choice to consumers. #AskECB

What is the added benefit to the economy of having bond yields go from negative to further negative? #askecb

Schnabel: We are examining this question as part our ongoing strategy review. The scope of policy transmission may indeed change when rates are very low. Please read my recent speech for more details. #AskECB

#AskECB In your opinion: What is the connection between the Central Banks’ monetary policy and asset prices, be it equities, be it real estate? Thank you @Isabel_Schnabel. #ECB

Schnabel: Lower interest rates tend to go along with higher asset prices. But lower rates are not just the consequence of monetary policy, but of long-term structural trends, like ageing and low productivity growth, leading to high savings and low investment. #AskECB

What is the process of the #ecb monetary policy strategy review? #Who decides and #when? Are there important #milestones? Thank you, @Isabel_Schnabel #askECB

Schnabel: We are conducting extensive analyses, and central banks across the euro area are hosting listening events with the public and with experts. The Governing Council expects to conclude the review in the 2nd half of 2021 #AskECB More information here

Why accept a longer return to the inflation target? Would never have been acceptable under Mario. Any inflation rate between 0% and 2% acceptable? A German-centric view of the world?

Schnabel: We took swift actions to counter the shock from the pandemic on our inflation outlook. We remain undeterred in our commitment to bring inflation back to our medium-term aim of below but close to 2%. But the speed of return depends on the shocks we are facing. #AskECB

#AskECB How many watches does Frau Schnabel have?

Schnabel: Two :) #AskECB

How do you judge whether the strengthening of the EUR (both trade-weighted and vs USD) is: 1. Deflationary (and hence needs action) or 2. A reflection of better EU area growth prospects, which is inflationary in the medium term (and hence need no action) #AskECB

Schnabel: The sources of shocks are important for the pass-through of exchange rate changes to inflation. Our analysis shows that several factors have been behind the recent appreciation of the euro, including prospects of a faster global recovery. #AskECB

With reference to the „EU taxonomy for sustainable activities“, would the ECB welcome an EU taxonomy for “polluting”or GHG-intensive activities and how could that positively affect ECB’s monetary policy and banking supervison with regard to its climate impact? @Koalas_Eng #AskECB

Schnabel: The European Commission’s taxonomy is an important first step in assessing climate impact. A more complete taxonomy, including less green activities, would be a useful complement. #AskECB

Sorry for all the hate on here, sadly it's 90% ECB haters who care enough to comment on this post. Not a true representation of the population. Yet - could we find a way to boost economic literacy in the EU?

Schnabel: Economy literacy is something I care about very much - not just when teaching at university but also now at the ECB. By improving our communication, we hope to also contribute to advancing economic literacy. But schools should also play a greater role here. #AskECB

How can the ECB, through its Single Supervisory Mechanism, prevent the banking sector from destroying our children's future through their fossil fuel investments? #AskECB

Schnabel: The risks from climate change will be increasingly taken into account in the risk assessments of banks’ balance sheet. Please read the excellent speech by Andrea Enria on this topic. #AskECB

Hi Isabel, 99.9% of people I know have never heard of digital euros and the rest couldn't care less. So what is the rationale for investigating it? Is it to ensure the monetary rate is applied consistently in the EZ ?

Schnabel: A digital euro is explored to ensure the access to public money in a digital world. Its potential introduction is not motivated by monetary policy reasons. Our public consultation has generated considerable interest. #AskECB

#AskECB When will central banks stop creating financial INSTABILITY via artificial bubble of asset prices and stop making rich richer? @Isabel_Schnabel @Lagarde @DallasFed @JanetYellen @federalreserve

Schnabel: The current pandemic is a good example of how the @ecb has supported financial stability by preventing a financial crisis. Our policies have also helped to protect millions of jobs, which mainly benefits people with lower incomes. #AskECB

#AskECB what framework does ECB use to analyze the outcomes and impact of its policy decisions? How does ECB approach possible mistakes in the past and incorporates learnings in its decision framework?

Schnabel: To take policy decisions and assess their impacts we use a large suite of different models and analyses provided by ECB and Eurosystem staff. These models are constantly adjusted to take into account the changing economic environment, new data and methods. #AskECB

"If there was proof that your actions cause massive social harm, would you stop?" #askecb

Schnabel: We study the impact of our measures continuously and assess their proportionality, taking into account potential side effects. Our analyses have shown consistently that positive effects have exceeded negative ones. Otherwise, we would change our policies. #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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