Volker Wieland advises swift reduction of ECB balance sheet (Stuttgarter Zeitung, FAZ)

Especially in times of high inflation, a rapid reduction of the European Central Bank's (ECB) central bank balance should be a priority. Prof. Volker Wieland confirmed this interviews with "Stuttgarter Zeitung" and "FAZ".

The interest rate turnaround of the ECB has not yet reached the majority of savers; credit institutions, on the other hand, currently receive an interest rate of 2.5 percent for their deposits at the ECB. In this context, the "Stuttgarter Zeitung" picks up on a suggestion by Belgian economist Paul der Grauwe that the minimum reserve at the ECB should be increased without paying interest on it.

According to Wieland, this would mean an extreme change in the financial system. Currently, the minimum reserve is only a very small part of the banking system's reserves at the central bank, he explained in an interview with "Stuttgarter Zeitung". He added that the ECB's balance sheet is inflated due to the high level of securities purchases; depending on the state, the ECB holds between 25 and 45 percent of public debt.

According to Wieland, increasing the minimum reserve without interest amounts to "forcing government financing at zero percent on a large scale to avoid the interest that governments would otherwise have to pay on the market." Instead, Wieland advocates "swiftly reducing bond holdings in times of high inflation."

In addition, the ECB could sell various assets now, such as the corporate bond portfolio, Wieland said to the "FAZ". "At a later stage, the central bank could then also sell government bonds."

Since the beginning of March, the ECB has been allowing bonds from its portfolio worth 15 billion euros per month to mature. This arrangement is initially limited until the end of June. The ECB's balance sheet increased to 699 billion euros by the end of 2022. So far, only part of the expiring bonds from the older purchase program APP (Asset Purchase Programme) is involved. In the second quarter of this year, the Governing Council will then review the pace of the reduction of the APP portfolio.

Stuttgarter Zeitung: "Ärger um Übergewinne der Banken"

FAZ: "Jetzt beginnt die EZB eine Billionen-Bewegung" (€)

(The quotes also include background information beyond the statements that appeared in "Stuttgarter Zeitung" and "FAZ".)