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This thread is for those of you who don’t find the time to read my #PetersbergSpeech in full. Link to English translation (including slides): ecb.europa.eu/press/key/date…. Link to original German version: ecb.europa.eu/press/key/date…. Op-ed @welt (in German): welt.de/wirtschaft/art…. 1/11
Main message: Without the #PEPP and our other measures, we would now presumably be in the midst of a severe financial crisis. The measures taken by the ECB are (1) necessary, (2) suitable and (3) proportionate to ensure price stability in the euro area. 2/11
Important clarification: This speech is not about #PSPP, subject to a court case @BVerfG. It is about the measures taken in response to the pandemic, designed specifically for the pandemic & containing own safeguards to protect fundamental principles of the currency union. 3/11
(1) Necessary: In the 1st crisis phase our measures likely prevented a full-blown financial crisis that would have posed a risk to achieving our price stability mandate. In March, indicators of systemic stress rose to levels seen in the global financial and euro area crises. 4/11 Image
In the 2nd phase, the @ecb has to prevent that low inflation takes hold in the economy, which could lead to lower wages, growth & investment. According to current Eurosystem staff projections, inflation could remain at close to 0% well into the next year. 5/11 Image
(2) Suitable: Room for manoeuvre for conventional monetary policy is limited due to a fall in the real equilibrium rate, caused by structural factors. Asset purchases are particularly effective in periods of high uncertainty & help to prevent self-reinforcing price spirals. 6/11 Image
Flexibility is needed to counter risks of fragmentation in the euro area but ECB capital key remains an important compass guiding us over the medium term. Conditional on market conditions, deviations from capital key can eventually be reduced, e.g. in the reinvestment phase. 7/11
The crisis measures, including #PEPP and liquidity-providing operations for banks #TLTROs, have been effective in improving the financing conditions for governments, firms and banks. This, in turn, is expected to have a stabilising effect on inflation and economic growth. 8/11 Image
(3) Proportionality: (a) Distributional effects: The weakest in society will benefit most from our measures due to their effects on employment. Effects on net savers would have been much larger if @ecb had lowered key interest rates instead of increasing asset purchases. 9/11 Image
(b) Incentives for fiscal discipline: Rising primary balances in previous years do not suggest significant incentive effects. There are no signs of excessive government borrowing on the back of low yields. The temporary nature of #PEPP limits potential incentive effects. 10/11 Image
For those interested in a broader discussion of potential side effects of monetary policy, please see my #KarlsruheSpeech in February (available in German and English): ecb.europa.eu/press/key/date…. 11/11
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More from @Isabel_Schnabel see all

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Isabel Schnabel
@Isabel_Schnabel
Yesterday we decided to create a Eurosystem repo facility to provide liquidity in € to central banks outside the euro area: EUREP = Eurosystem repo facility for central banks. This is a precautionary measure to alleviate potential € funding difficulties due to the pandemic. 1/5
Repo lines protect and support monetary transmission in times of market distress, e.g. by preventing fire sales of €-denominated assets by banks in need of € liquidity. Importantly, such facilities have a stabilising effect even if they are not used. 2/5
EUREP complements existing bilateral swap/repo lines, e.g. in the swap line network (with the Fed, Bank of England, Bank of Canada, Bank of Japan, Swiss National Bank), and new swap lines to the Croatian & Bulgarian central banks or repo line to the Romanian central bank. 3/5
Read 5 tweets
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Isabel Schnabel
@Isabel_Schnabel
In my interview with @MAmdorsky @FT, I talk about monetary policy @ecb, the economic outlook, the European recovery fund and the longer-term consequences of the crisis. The full transcript of the interview can be found here: ecb.europa.eu/press/inter/da… 1/7
We will not adjust our monetary policy measures in response to the GCC ruling & will continue to act in line with our mandate. We continuously assess the pros & cons of our measures. Side effects of monetary policy & communication will also be part of our strategy review. 2/7
A solution will be found that will allow the @bundesbank to continue to participate in our asset purchase programmes. If the @ecb can constructively support that process, we will do so. 3/7
Read 7 tweets
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Isabel Schnabel
@Isabel_Schnabel
In my interview with @mastrobradipo @repubblica, I argue that the @ecb has responded swiftly and forcefully to the deep crisis that Europe is facing. The impact of our measures is substantial, and we stand ready to expand all of them, as needed, in line with our mandate. 1/6
Many of the #ECB’s monetary policy measures are bank-based, which is crucial for countries like Italy where small and medium-sized enterprises play an important role. The #ECB always assesses carefully that its measures are suitable, necessary and proportionate. 2/6
We need to make sure that our monetary policy is transmitted to all parts of the euro area. Diverging spreads are often a sign of fragmentation, and we are fully committed to countering such developments. The #PEPP is the right policy tool in this respect. 3/6
Read 6 tweets

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