5 questions for Dr. Jörg Krämer, Commerzbank AG

No, I don’t think so. Economic growth is weakening significantly right now and the ECB is under the influence of the highly indebted countries, especially from the south of the monetary union. The ECB is therefore likely to decide in December to loosen its monetary policy again. It will probably significantly expand its bond purchases under the APP when the PEPP programme expires in spring next year. In order to be able to react flexibly to market events and to ensure low bond yields, the ECB will probably no longer announce a fixed monthly purchase volume for the APP. Instead, as with the PEPP, it is likely to communicate a trend for the purchase volume of the coming three months before each quarter.

We are still a long way from the time when the ECB starts to reduce its covered bond holdings. It will only stop its net purchases shortly before the first interest rate hike and then reinvest the amounts from maturing securities for a long time. We expect that the Governing Council, which is dominated by a dovish majority, will not reduce ECB bond holdings before the end of 2026.

The ECB rightly wants to adjust its corporate bond purchases so that it does not continue to buy a disproportionate amount of bonds from companies with an above-average carbon footprint. Then it would no longer counteract the EU’s climate policy. But beyond that, the ECB cannot and should not pursue an active climate policy. For one thing, there is a risk of serious conflicts between the goal of price stability and climate protection if it had to sell green bonds, for example, in the event of a potential permanent rise in inflation. Secondly, the ECB can raise the financing costs of companies with high greenhouse gas emissions by not buying their bonds or by demanding higher haircuts from the banks holding such bonds. But the CO2 price thus implicitly introduced would be different for each company. There would be no uniform CO2 price to which all companies could align themselves and which would separate efficient from non-efficient green investments. The ECB simply lacks the appropriate instruments for an active climate policy.

Greenwashing is a real risk. That is why we need clear standards. However, it is also important that the capital markets alone cannot bring about a climate-friendly restructuring of the economy. Ultimately, it is up to the state to expand CO2 certificate trading in order to enforce a uniform CO2 price for all across the board. Only then will everyone have an incentive to deal economically with the resource climate and to reduce CO2 emissions as citizens expect.

Inflation remains an important issue. It must fall again after the pandemic subsides in the spring of next year, especially in the USA. Otherwise, the Fed would tighten its monetary policy much sooner than most assume so far. Then the ECB would have to buy massive amounts of bonds to shield euro government bonds from a sell-off in US treasuries. But I am confident that this scenario will not happen.