Gaston Reinesch (pictured), president of the Luxembourg Central Bank, addressed the ECB’s extended bond-buying programme, Luxembourg’s real estate market and the abolition of €500 notes in an interview with 100,7 on 27 October.
Photo: Maison Moderne Archive
Gaston Reinesch, president of Luxembourg’s Central Bank, said that the European Central Bank (ECB) extended its bond-buying programme until 2018, while edging closer to their inflation target under 2%.
The ECB halved their bond-buying programme to €30bn and planned to continue their monthly acquisitions until September 2018, as Gaston Reinesch explained in an interview with 100,7 on 27 October. The bond-buying programme was enforced to counter the sovereign debt crisis in Europe.
According to Reinesch, the decision reflected the latest results of an analysis of the current economic situation in the Eurozone.
“We have to look at the monetary evolution over the last ten years in the ECB. The starting and reference point was the big financial crisis from 2008. I believe that back in 2007, we couldn’t have imagined what would happen in 2008. It started in America, came over to Europe and I think that in Luxembourg, we experienced several epiphenomena of the crisis. Afterwards, in 2010, we experienced the deep crisis on sovereign Europe which impacted the fragility of banks and a very bad conjecture, where it was feared that we would enter a period of deflation. This context needs to be remembered to understand and appreciate the current context.”
Reinesch explained that ECB’s inflation target, which is slightly below 2%, had not been reached, but they were heading towards their aim.
“We haven’t reached this goal yet. We have an improving conjecture mainly thanks to, and that’s been shown in all of the analyses, the monetary policies from the last years. I would even say that at the heart of Germany, it’s no longer contested. The inflation target has not been reached and we believe that we can reduce our programme--but to halt it would be too abrupt of a movement.”
Moreover, the base rates in the Eurozone were left unchanged. According to Reinesch, the rates will only climb after the bond-buying programme has ended.
Risks for real estate market?
The costs of the real estate market have been increasing since 20 years in Luxembourg and a discussion on this topic was overdue, in Reinesch’s opinion. Even though he said that there was not a systematic risk yet, it was necessary to focus on the supply, as Reinesch explained:
“There is only one efficient policy: one needs to react on the supply level. Therefore, we need a global reflection on the territorial organisation, in line with transport, to increase the supply and thereby to reduce the evolution of cost.”
Stop production of €500 notes
Another topic was the production of €500 notes, which the ECB will stop producing. “The main argument was that €500 notes are used for criminal affairs and therefore, it was discussed not to cut them but to reduce their use,” Reinesch noted. €500 notes that are already in circulation are still valid. For Luxembourg’s finance market, an abolition of €500 notes would have no impact, it was only a matter of logistics, Reinesch explained.