DWS | The ruling of the German Federal Constitutional Court on the expansion of the European Central Bank’s (ECB’s) balance sheet has given new impetus to an old question. Does this seeming expansion of the money supply, which currently is mainly achieved through bond purchases by the Bundesbank and other national central banks of the Eurozone, bring a substantial risk of inflation?
ECB’s balance sheet
MADRID | By J.P. Marín Arrese | The ECB asset purchases drive has received staunch support from the financial markets. No wonder, as it turns the central bank into a huge and largely undemanding backstop. Under the covered bond programme, it will switch banking liabilities into fresh liquidity. The ABS purchases scheme will transfer loan portfolio exposure to the ECB. Overall, both measures amount to a solid backstop for redressing banking solvency. The move comes most timely, as stress tests and asset quality reviews are due shortly to be published.