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Isabel Schnabel
Member of the ECB's Executive Board
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Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted and published on 10 January 2024

10 January 2024

Hi all, this is , Executive Board member at the ECB. I look forward to answering your questions for the next 45 minutes or so. Please join our conversation!

Who decided that 2% inflation is good and what are the negatives for deflation? When was it tested? In what countries? In what timeframe?

: The ECB decided in its 2021 strategy review that a 2% target is best suited to maintain price stability. It provides a safety margin against deflation risks and eases the constraint from the zero lower bound on interest rates: https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op279~016b279f2e.en.pdf?8f9fbedf46f0b7ecf0ac42473109e11a

On August 2022, you wrote: "central banks are likely to face a higher sacrifice ratio compared with the 1980s". Yet, we have seen how inflation has decreased while unemployment stood at historical lows. How do you reconcile your sentence with the observed facts? #AskECB

: Before the pandemic, research pointed to a flattening of the Phillips curve and a higher sacrifice ratio. New evidence suggests that the curve may have steepened, pointing to the possibility of a “soft landing”. See: https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230831~c25314a3fc.en.html

With the TPI, the ECB now decides the political landscape in the EU, making populist spending and election possible, since the "normal mechanism" of spread increase does not happen. When did the ECB's remit move into deciding who should be in power, and why populists?

: The TPI can only be activated to counter unwarranted, disorderly market dynamics posing a threat to monetary policy transmission across the euro area. Eligibility requires that countries pursue sound and sustainable fiscal and macroeconomic policies.

There is a large group of "austrian" or "hard-money" economists and citizens completely unrepresented at the ECB leadership. Are you concerned about the lack of representation and lack of diversity of thought at the ECB board?

: The ECB leadership is selected on the basis of competence. Diversity of thought is important. The current Board and Governing Council display a broad range of experiences and expertise, which are instrumental in fulfilling our mandate.

Why do you think Governments with their own sovereign currency and the ability to print money with key strokes, would ever consider borrowing and paying interest? And don’t you dare tell me that selling bonds is for revenue, we are all wise to that ol’ Myth.

: A large majority of countries have independent central banks, meaning governments cannot simply “print money”. This is why governments indeed borrow and pay interest if they want to spend more than their revenues.

the Eurozone unemployment rate decreased in November. How does this fit to the expectation that wage growth will slow this year?

: The drop in unemployment to a historical low confirms continued strong resilience in labour markets, which is broadly in line with the December 2023 staff projections. As inflation falls, we continue to expect a gradual decline in wage growth in 2024.

Do you expect that with the compromise on the new fiscal rules, a very restrictive fiscal policy will again make life difficult for monetary policy? What do you think of the idea of Germany incorporating the numerical targets of the EU fiscal rules into the debt brake?

: The new fiscal rules are a step in the right direction. They are less procyclical, use a differentiated approach across member states and acknowledge the importance of public investment. However, the new framework lacks a central fiscal capacity.

Récent central bank pivot triggered a substantial rates rally at the same time where Eurozone survey data are pointing to recovery. Does that concern you about inflation reacceleration or does the link between Growth/Inflation (and rates?) has softened? Thank you

: There is evidence that sentiment indicators are bottoming out, but the near-term economic outlook remains weak in line with our projections. At the same time, financial conditions have loosened more than projected, while energy prices have been weaker.

Do you think the Bitcoin ist better as the Euro CBDC? If not, why?

: The digital euro is public money issued directly by the European Central Bank. Bitcoin is different – it is a speculative asset that does not fulfil the characteristics of money.

ECB policymakers have tried to push back on market's bets, but their attempt was rather unsuccessful given the current pricing of rate cuts for March/April. What do you think the ECB needs to do to improve its credibility in the eyes of the markets?

: Markets understand well that our policy is data-dependent and we have clearly defined the elements of our reaction function. I do not see a lack of credibility, but there can be different views on future economic developments and the inflation outlook.

Inflation has been moderating whether it be headline, core or underlying. At which point could the ECB start lowering its guard? What do you think of geopolitical risks in the Red Sea on inflation in the euro area?

: Our projections foresee inflation reaching our 2% target in 2025. So we are on the right track. Geopolitical tensions are one of the upside risks to inflation as they could drive up energy prices or freight costs. That’s why we need to remain vigilant.

What is the ECB's main reason not to already cut rates in the current recessionary context in Europe?

: Inflation has eased but underlying price pressures remain elevated. Policy rates need to be sufficiently restrictive for as long as necessary to ensure that inflation sustainably returns to 2%. A slowing economy is part of monetary policy transmission.

Wie finden Sie es, dass Notenbanken Staatsanleihen kaufen und in ihrer Bilanz halten?

: Purchases of government bonds can be a useful monetary policy tool to achieve price stability when policy rates are close to their effective lower bound, or to protect monetary policy transmission. In March 2023 we started reducing our bond holdings. #AskECB

: Anleihekäufe können ein nützliches geldpolitisches Instrument sein, um Preisstabilität zu sichern, wenn die Zinsen nahe ihrer Untergrenze sind, oder um die geldpolitische Transmission zu schützen. Seit März 2023 reduzieren wir unsere Anleihebestände.

Warum wurde der Anteil von Mietkosten und Nebenkosten im Warenkorb reduziert obwohl die Kosten steigen? Why was the proportion of rental costs and additional costs in the shopping cart reduced even though the costs are increasing?

: The weights of items in the HICP consumption basket are determined by the proportion of average household spending. Weights are adjusted at the beginning of each year. This is the responsibility of Eurostat, together with national authorities.

: Die Gewichte im HVPI-Warenkorb werden über den Anteil an den durchschnittlichen Haushaltsausgaben bestimmt. Sie werden zu Jahresbeginn durch Eurostat gemeinsam mit den nationalen Behörden angepasst. #AskECB

When will the ECB start buying bitcoin for its balance sheet?

: The ECB is very unlikely to ever buy Bitcoin.

What are overall indicators ECB is looking at to confirm a cut this year ? Also Powell has mentioned that falling inflation raises the likehold of a restrictive policy, will ECB also start loosening policy before 2%??

: Crucial indicators for the outlook of underlying inflation are the developments of wages, profits and productivity. Due to the expected easing of monetary policy, financial conditions have loosened rather than tightened recently.

Dazu: Warum darf die Notenbank Staatsanleihen explizit nicht direkt kaufen, aber dafür nach ein paar Tagen in Absprache mit den Großbanken als Zwischenstation. Inwiefern ist das etwas anderes?

: As confirmed by the ECJ, the ECB may buy government bonds on the secondary market unless this is equivalent to a direct purchase. If banks could resell bonds to the ECB with certainty, this would violate the prohibition of monetary financing.

: Laut EuGH darf die EZB Staatsanleihen auf dem Sekundärmarkt kaufen, sofern dies nicht äquivalent zum direkten Kauf ist. Könnten Banken Anleihen mit Sicherheit an die EZB weiterverkaufen, verstieße dies gegen das Verbot der monetären Staatsfinanzierung. #AskECB

Welchen Vorteil bringt CBDC gegenüber dem aktuellen digital Geld was ich hin und her schicke, WIRKLICH!?!?!?

: A central bank digital currency provides public money – like cash – but in digital form. The ability to exchange private money – like bank deposits – into public money at any time strengthens trust in the currency. More here https://ecb.europa.eu/paym/digital_euro/why-we-need-it/html/index.en.html

: Digitales Zentralbankgeld ist öffentliches Geld, wie Bargeld, aber in digitaler Form. Die Möglichkeit, privates Geld wie Bankeinlagen jederzeit in öffentliches Geld umzutauschen, stärkt das Vertrauen in unsere Währung. Mehr hier https://ecb.europa.eu/paym/digital_euro/why-we-need-it/html/index.de.html #AskECB

Do you really not get it that inflation is only a function of money supply growth in the long run? Or do you know but ignore it because it would harm your career?

: Just recently I gave a speech on the relationship between money and inflation. Have a look! It’s not as simple as you suggest: https://ecb.europa.eu/press/key/date/2023/html/ecb.sp230925_1~7ad8ef22e2.en.html

Looks like many ECB economists duplicate less paid and equally competent NCB staff, with limited value added and higher complexity. Do you have the right people and institutional layout to effectively tackle increasingly complex problems while making good use of eu money?

: The Eurosystem is organised in a way that avoids duplication by a division of labour. Centralised decision-making with decentralised implementation is an efficient way of fulfilling our mandate.

Do you admit that price stability means most of the time (f.e. 2010-2020) fighting prices going down? What are opportunity costs and unintended consequences of your mandate of price stability?

: Price shocks were predominantly disinflationary before the pandemic and inflationary after the pandemic. Shocks related to climate change or a decline in globalisation could imply a higher prevalence of inflationary shocks in the future.

What does it say about Fiat that - according to the ECB - it needs to be enforced as legal tender to be considered money?

: Fiat money is not backed by commodities like silver or gold. Its value stems from people accepting it. This is fostered by a credible central bank and the legal tender status, which means people are in principle obliged to accept it at face value.

Are there IT jobs available at the ECB

: Yes, we are frequently looking for IT experts. Check out our vacancies here: https://talent.ecb.europa.eu/careers.

my question: As part of a serious, long-term risk strategy for the ECB (as with every central bank in the world), wouldn't it be advisable to hold small Bitcoin reserves alongside gold reserves?

: The objectives for the management of the ECB’s foreign reserves are liquidity, security and returns. Bitcoin is a speculative asset that does not meet our criteria for foreign reserves. More here: https://ecb.europa.eu/ecb/tasks/reserves/html/index.en.html

I have 2 questions. BLS showed throughout 2023 that bank lending was (very) weak. What do you expect for 2024? Continued weakness or (subdued) recovery? Is it a sign for you of monetary policy transmission?

: In 2023 credit standards tightened significantly and loan growth fell sharply. This shows that our monetary policy is transmitted to the economy. Loan growth is expected to gradually recover as of 2024.

In your opinion, what is the neutral rate of interest for the Eurozone going forward, once the 2% target has been reached?

: Estimates of the neutral rate are inherently uncertain. The need for higher private and public investments due to the green transition as well as digitalisation and geopolitical shifts may lead to the neutral rate being higher than before the pandemic.

Does having a single price stability mandate (unlike dual mandates like Fed’s price and employment ) make ECB reaction function overtly hawkish?

: Our reaction function is determined by our single mandate of price stability. Our inflation target is symmetric and our medium-term perspective allows us to also tackle supply shocks without unnecessarily causing unemployment.

Where do you see r* currently and what implications do you see it having for the monetary policy calibration?

: Estimates of r* are subject to very large confidence bands. Therefore, they provide limited guidance for monetary policy in real time. So we also need to look at incoming data to see how restrictive our policy is.

The ECB projects more years of above-average inflation after the already large peak, at the same time the ECB is not rising rates now further to counter-act inflation after the lag effect. Why not act now to reduce future projected above-average inflation?

: According to our projections, inflation will approach 2% in 2025. Our monetary policy works with a lag. If we raised rates too strongly, this could lead to an undershooting of medium-term inflation and an unnecessarily strong slowdown of the economy.

When can we expect the review of the ECB's operational framework to be finalized?

: We aim to conclude our operational framework review this spring.

¿why do you buy government's debt? That makes you less independent and lets government's reach levels of debt that should not be possible creating crisis and/or inflation.

: Government bond purchases are a tool to protect policy transmission, or to stimulate demand when our policy rates reach their effective lower bound and inflation is below target. Side effects like fiscal dominance or moral hazard need to be monitored.

The market is pricing cuts in 2024 pretty aggressively. Yet the ECB forecasts predict core inflation above 2% for the entire year. At which level inflation would have to either realize or be forecasted at, for the ECB to start cutting this year. Thank you

: It is too early to discuss rate cuts. We will keep our key policy rates at restrictive levels until we are confident that inflation sustainably returns to our 2% target. This requires additional data confirming the disinflationary process.

How have the recent shocks (the pandemic / energy crisis) affected the neutral rate in the eurozone - have they increased it from the pre-pandemic period?

: The increase in real yields after the pandemic may partly reflect changes in the short-term natural rate of interest. But the post-pandemic economic environment has also complicated the measurement of that rate.

How much of the money in Eurozone is public money in how much private money?

: Most of the money in the euro area is private money, such as bank deposits. Currently, public money is only available in the form of cash. Of about €10 trillion in readily available money (M1), banknotes constitute some 15%.

pls take my question in advance then, vry simple/straightfwd: Why does the insist on pushing the EZ into recession if all headline and core measures on shorter 3m and 6m annualized windows already indicate inflation BELOW 2%????

: Our mandate is to preserve price stability. For that we need to see inflation returning sustainably to our 2% target. We expect inflation to reach 2% in 2025 and project that we can achieve this without causing a deep or prolonged recession.

What’s is your view on proposal regarding different rates for “greener” purposes? Is it even realistically possible? Pros&Cons?

: We should intensify efforts to green our lending operations, including the collateral framework. First steps are already being taken. Green targeted lending operations could be considered when monetary policy needs to become expansionary again.

Is CBDC going to be used to force citizens to make certain choices they don't feel will benefit them?

: Not at all. A digital euro would offer an additional payment option for everyone in the euro area, backed by the ECB and usable all over the euro area. Just like cash, it would be simple to use and meet the highest privacy standards.

Hello, i would like to ask how the ECB intends to preserve the €'s buying power, considering the energy rising costs and deteriorating manufacturing whose decline seems to be unabated. Ty for your time and i apologize in advance if im too vague. Am just a simpl man

: Inflation has come down significantly due to a reversal of previous shocks and our policy tightening. But monetary policy will not undo the rise in the overall price level as this would require plunging the economy into a deep and long recession.

Considering the diversity of economies within the eurozone, how would the ECB ensure that measures effectively reach all member states, addressing potential concerns about uneven transmission of the policy effects?

: Our monetary policy has been transmitted to all parts of the euro area. But due to institutional features, such as fixed vs variable rate loans, transmission will not be the same. Economic convergence and financial integration foster even transmission.

How is it the ECB, exactly like the EU, wields so much power for NOT be elected by ANYONE?

: Elected governments decided that central bank independence is the best way to ensure price stability. The ECB must always act within its mandate and is accountable to the European Parliament. More here: https://ecb.europa.eu/ecb/orga/accountability/html/index.en.html

Does the ECB take into account the asymmetries that are produced from its policies due to the fact that the EZ is not a proper monetary union? Do you think it should/shouldn't? Thank you

: Further steps in European integration would clearly benefit our single monetary policy. Therefore we need to make further progress towards capital markets union and the completion of banking union.

Why would any Country give up their sovereign currency knowing that money can be printed instead of borrowed ? The US,UK,Can... have retained their sovereignty, they are in a better situation to react to "shocks" in the economy. natural or man made.

: The euro area countries have decided to give up their own currencies and join the euro. A currency union reduces transaction costs and facilitates trade by removing exchange rate risks. The euro enjoys wide support in all member countries.

Also, how far can BVB go in the Champions League this season?

: All the way!

Time to wrap up for today. Many thanks for your questions – I really enjoyed our chat! Take care,


Banca centrale europea

Direzione Generale Comunicazione

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