European Central Bank: Independence risks rise with debt – Commerzbank

Commerzbank’s Dr. Marco Wagner assesses how political pressure threatens the European Central Bank’s (ECB) independence using a Central Bank Pressure Index based on AI analysis of politicians’ statements. Wagner highlights past demands on the ECB during the sovereign debt crisis and warns that high and rising debt-to-GDP ratios in countries like France and Italy could again politicize monetary policy and constrain the ECB.

Eurozone debt and ECB pressure risks

"Unlike in the U.S., the verbal attacks here did not come from a single individual. Rather, the financial crisis—and in particular the sovereign debt crisis—prompted politicians to make clear demands of the ECB."

"In recent years, even as the COVID-19 pandemic and the energy price crisis triggered by the war in Ukraine placed a heavy strain on government finances, there were hardly any demands made on the ECB. However, this was likely due to the fact that the ECB quickly launched the PEPP (Pandemic Emergency Purchase Program) and the 750 billion euro Next Generation EU (NGEU) financial package was financed through shared debt. The PEPP is now being phased out, and the NGEU fund is in its final phase."

"In many European countries, however, the financial situation remains strained. The rise in yields over the past few years has increased the interest burden on public budgets, and the efforts of individual countries to consolidate their finances have been limited. Rather, according to our estimates, debt-to-GDP ratios—for example, in France and Italy, where debt already stands at 120% and 130% of gross domestic product, respectively—are likely to continue rising."

"Against this backdrop, certain risks of politicization are likely to loom for the ECB as well."

"For the eurozone as well, our newly developed Central Bank Pressure Index (CBPI) shows that there are repeated attempts by leading politicians to influence the ECB. We use the following steps to calculate our indicator:"

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)