Webinar: The Politics of Central Banking in Europe

The coronavirus pandemic is expected to lead to European governments running unprecedented budget deficits this year and probably the next year too. Financing these deficits will pose a significant challenge: the European Central Bank (ECB) will buy over €1trillion of bonds this year and will likely continue to shoulder most of its burden despite the EU moving closer to a common fiscal response to the crisis. This raises questions over how the ECB eventually deals with its expanding balance sheet and whether it is engaging in monetary financing of government deficits. Furthermore, the recent German constitutional court ruling that will potentially cut the German central bank out of the ECB’s bond-buying programme throws up additional complications for the implementation of the ECB’s monetary policy.

This webinar will consider the potential monetization of this increase in debt levels and the politics surrounding it. How might the politics of relying on the ECB play out between member states in the eurozone and will the ever larger stock of government debt held by central banks put pressure on their independence? Will explicit monetary financing lead to excessive use of it in the future? Could a higher inflation target help reduce the debt-servicing burden by allowing some of the debt to be inflated away? And, in general, what does a high debt and low inflation world mean for central bank independence – once considered crucial in achieving the latter?

This event is part of a series of events on financing the implications of the COVID-19 pandemic organized by the Europe Programme and the Global Economy and Finance Programme at Chatham House.

This event is part of a fortnightly series of ‘Business in Focus’ webinars reflecting on the impact of COVID-19 on areas of particular professional interest for our corporate members and giving circles.

Not a corporate member? Find out more.