The ECB Governing Council has decided to end net bond purchases under the PEPP crisis programme at the end of March. In return, however, purchases under the regular bond-buying programme are to be expanded. Furthermore, maturing bonds will be purchased under the PEPP until at least 2024. Thus, the ECB retains a high degree of flexibility to deviate from its capital key. Professor Friedrich Heinemann, head of the research area "Corporate Taxation and Public Finance" at ZEW Mannheim, has commented on this topic:

ZEW economist Professor Dr. Friedrich Heinemann in a commentary on the latest decisions and changes of the ECB.
Professor Friedrich Heinemann, head of the ZEW Research Department “Corporation Taxation and Public Finance”.

“Although this is a first step towards exiting the crisis policy mode, the decision is still a half-hearted one. With the phase-out of the PEPP, the crisis policy mode actually ends only on paper; in fact, net government bond purchases under the PSPP continue. It is also controversial that the ECB Governing Council plans to use maturing PEPP funds until at least 2024 to provide targeted additional support to individual countries, if necessary. If the ECB does indeed continue to disproportionally benefit certain euro states for years to come with its government bond purchases, then this is no longer a conventional monetary policy, but clearly serves to finance states with critical debt levels. Such an approach, which was still justifiable in the acute crisis, is now becoming increasingly problematic as the economy recovers and inflationary pressure rises. The next proceedings before the Federal Constitutional Court and the European Court of Justice on the legitimacy of bond purchases promise to be exciting.”

Previous Comments

As expected, the ECB Governing Council has not yet taken a decision on the future of the ongoing bond purchases under the PEPP crisis programme, nor has it made any changes to its current monetary policy. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, has commented on this matter:

“The ECB Governing Council is currently still reflecting on whether and how to react to the surprisingly strong inflation dynamics. In this context, it is right that the Council does not act hastily now and, as announced, won’t decide on the bond purchases until its December meeting. The rising inflation expectations provide a particularly strong argument for putting an end to PEPP purchases in March 2022. The current cooling of the economy does not change this. Growth problems caused by the lack of intermediate goods cannot be effectively countered by means of monetary policy. The markets should therefore be prepared for the end of PEPP to be announced in December. However, it is also to be expected that the regular bond-buying programme PSPP will then play an even bigger role and that its rules will be further relaxed.”