|
|
Ms Schnabel, never before has the ECB provided so much money for asset purchases in such a short period of time. Is this crisis worse than anything we’ve seen before?
It’s an extraordinary crisis. It’s not just Europe that is affected, it’s the whole world. And in addition to the health problems and the human suffering, we’re also experiencing a severe economic shock that is being compounded by the protective measures taken. Our new asset purchase programme, which has been put in place specifically for this pandemic emergency, aims to address the particular nature of the situation we are facing.
Where do you see the biggest problems?
The crisis is affecting supply and demand at the same time. Initially, the focus was mainly on disrupted supply chains. Now the protective measures taken are also hampering production in many companies. And demand is falling too – if people don’t know what the future will bring, they hold on to their money, especially since many activities have been curtailed. Companies are investing less. And all that means that we are already facing a massive shock; we need to make sure that it doesn’t get even worse.
If the ECB buys sovereign bonds, governments will be able to borrow money more easily and pass it on to firms. Is that still in line with your mandate?
Our actions are always determined by our mandate of price stability. And for this we need a functioning transmission mechanism so that monetary policy is passed on to the real economy. That mechanism had recently become impaired, as manifested by the sudden rise in euro area government bond yields. It was affecting all euro area countries, even Germany. When that happens, monetary policy has to step in.
Would you have liked to go into this crisis with higher interest rates, so that you could cut rates now?
Interest rates have been set appropriately also in recent years. Higher interest rates were not an option – otherwise we wouldn’t have been able to fulfil our price stability mandate and we would have damaged the economy. I know very few economists who are of a different view.
The banks are also a cause for concern. Do they have enough capital to survive this crisis?
It is imperative to prevent the crisis from spreading to the banking sector. That’s why measures targeting liquidity bottlenecks in firms are especially effective; they work by warding off high levels of loan defaults at banks. We should be glad that the banks’ capital requirements were significantly increased over the past few years. All in all, the banks are currently much better prepared for a crisis than they were before the financial crisis of 2008.
But is that enough in the face of the current shock?
We are indeed living through a scenario that no one could have imagined. It was therefore never assessed in a stress test – we are unfortunately experiencing it now in real time. If widespread insolvencies occured among borrowers, the banking sector would also be affected. But in many cases, the issue in the first instance is a liquidity bottleneck. That’s something politicians can deal with. The decisive factor is how long the crisis persists.