Is the ECB at risk of bankruptcy because of Qe? That’s why the German hawks are wrong

Help! There BCE it is about to collapse, bankruptcy, dragging the central banks of the Eurozone into a vortex of losses. Fault of Mario Draghiof its policy of monetary easing and of its unfortunate creature: Quantitative easing and the flood of public bonds (for 5 trillion euros) that that Qe had the European central bank rake up.

The anguished alarm is about to go on stage in Germany, once again on the stage of the Constitutional Court of Karlsruhe. Rejected a year ago, by the same Court, on the point of the legitimacy of the purchases of ECB securities on the market, the nostalgics for the Deutschmark are about to return to office, accusing the Frankfurt board of accumulating stratospheric losses. “We are talking about several hundreds of billions of euros” assures prof. Markus Kerber, constitutionalist and lead accuser. The accounts, moreover, have frightening numbers and the scourge of Qe does not concern only the ECB. The Fed has already lost $1.3 trillion from January to September alone and continues to lose $1 billion a week. The Swiss National Bank lost 143 billion, that of England 200 billion. And the ECB? More or less it should be 800 billion dollars.

A world crash, an implosion. But it’s true? No way. Prof. Kerber himself is forced to admit that central banks, by definition, cannot go bankrupt, if only because they can print their own money. But even the thunderous disaster figures themselves are, to put it bluntly, irrelevant. It is true that the ECB, through the national banks, has bought up securities at very low or even negative interest rates in recent years (for example in the Netherlands and in Germany) and that the market value of these securities today is wastepaper. But when the Bank of Holland declares that it has lost, at market values, 9 billion euros or the Bundesbank will do the same (which has a negative-rate Bund in its belly for a trillion euros) next week, the exercise is only of transparency. No central bank dreams of selling those bonds at market value, as stated many times. The commitment is to keep them until maturity (half of them have a maturity of over five years), when the value written on the coupon will be repaid down to the last cent.

No bankruptcy, not even figurative, therefore, as even the Bank of International Settlements (ie the central bank of central banks) is at pains to explain. However, it is true that today central banks have to discount the difference between the yields of the old securities they have in their portfolios (very low) and the remuneration of the commercial banks’ deposits with them (rapidly increasing). It is the inevitable effect of the flurry of interest rate increases decided by the ECB itself. In Frankfurt, they have just announced that, for the first time in 15 years, they have not made a profit in 2022, but, on the contrary, have closed in balance, only thanks to the use of 1.6 billion euros of reserves. Those reserves, however, are precisely the fruit of the profits accumulated in recent years, when the situation, between yields on securities and the remuneration of commercial banks, was reversed. The bottom line is that, for now, governments must give up the rich dividends that came from the Bundesbank as well as from Bank of Italy. On the other hand, they always tell the BIS, making profits is not the task of the central banks, which are asked, instead, to ensure the stability of prices and of the currency.

But, on the list of give and take, most of Qe doesn’t stop there. By pushing down the cost of public securities with its massive purchases, the ECB has allowed national governments to finance themselves on the markets at rock-bottom costs. In the German case, with negative rates, even gaining debt, given that investors paid for the privilege of having Bunds: the money that the Bundesbank now has to pay for having bought those Bunds at negative rates, moreover, is collected by the German treasure. And, more generally, the world of interest rates at or near zero, favored by Qe, has made it possible to fuel and encourage investment and employment, keeping GDP and tax revenues high. This too will have to be billed in Karlsruhe.