Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

How The ECB Boosts Inequality And What It Can Do About It

Clément Fontan and Stanislas Jourdan 10th May 2017

Clément Fontan

Clément Fontan

In its annual report, the European Central Bank clearly acknowledges that its ‘quantitative easing’ (QE) program has increased the richest citizens’ wealth. Yet the ECB claims that this is not its concern.

Since the inception of QE in the Eurozone, it has been clear that such a program would not only have limited effects on growth and inflation but would also carry important unintended consequences, including a rise in wealth inequality.

This is because of rather logical market behavior: a sudden rise in demand for certain products or services automatically provokes an increase in prices if there is no corresponding rise in the supply of those products.

Stanislas Jourdan

Stanislas Jourdan

This is an unavoidable effect of QE too. When central banks massively inject liquidity by purchasing sovereign bonds, this pushes up the value of those bonds – and affects other market segments too as QE fosters demand for corporate bonds and equities.

This well-understood logic has already been acknowledged and evidenced in the past by central banks. In a remarkable paper, researchers at the Bank of England measured the distributive impact of its own QE program in 2012 and concluded:

By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these assets.

Now the ECB has found similar trends. In its latest annual report, it sets out an exclusive assessment of the distributive impact of QE in the Eurozone. According to its own research findings, capital gains in bonds and equity markets, which were fueled to a large extent by its QE, have increased the net wealth of the richest 20 percent by roughly 30 percent or far more than the other segments of the population. The outcomes are best summarized in this chart:



Don't miss out on cutting-edge thinking.


Join tens of thousands of informed readers and stay ahead with our insightful content. It's free.



fontan jourdan graph01

The ECB explains further:

Euro Area households that hold financial assets, such as stocks and bonds, are strongly concentrated at the top end of the net wealth distribution. As such, only a fairly small subset of the population benefits from capital gains in equity and bond markets; three-quarters of the population do not benefit at all.

While the bank acknowledges this inegalitarian effect, it claims that QE has had positive effects (lowering unemployment and maintaining price stability) which justify the rise in wealth inequality. In other words, the ECB argues that this monetary trickle-down is the best policy for the Eurozone as a whole. In a 2014 speech, ECB’s Yves Mersch, even claimed : ‘These distributional side-effects need to be tolerated’.

However, while there is a kernel of truth in this idea, it only applies in specific circumstances. When the financial crisis broke out, the urgency of the situation meant that the lack of new monetary instruments, such as QE, could indeed have led to worse outcomes in terms of growth and employment. Yet, almost ten years later, central banks should acknowledge the limits of their actions and consider more seriously their unintended consequences.

Moreover, the ECB tends to overestimate the positive effects of the increase in financial prices on the real economy. Indeed, the rising price of financial assets does not automatically lead to more lending from the banks to the real economy and to more investment and job-creation. Banks rely on rising asset prices as a means of meeting the new Basel III capital requirements or for increasing their activities in wholesale rather than in retail banking. Second, rather than fostering capital investments for long-term growth, high stock values lead to more share buybacks, dividend payments and high-premium mergers and acquisitions.

In addition, while QE may have had a direct impact on job-creation, there are questions on whether such lower unemployment significantly contributes to reduced inequality. Given the worrying rise in precarious jobs and in-work poverty, we question the ECB’s assumption according to which more employment is necessarily leading to lower inequality.

Why the ECB should and can address inequality

But perhaps a more important point is whether the ECB should do something about this issue at all? In its report, the ECB says it should not: ‘Tackling any unwarranted redistributive effects is not in the realm of monetary policy in view of its primary objective of price stability. Governments can shape the income and wealth distribution via their policies, notably via targeted fiscal measures’.

So the ECB basically thinks that it falls to governments to deal with the problem it created in the first place. This is weak reasoning. First, because there are practical limitations to what governments can do in that respect in current circumstances. As Fontan, Dietsch and Claveau wrote:

Under conditions of capital mobility, redistributive taxation has become a lot harder to implement in recent decades. Therefore, when the fiscal hands of the state are tied, monetary policy should be more sensitive to the inequalities it creates than otherwise.

Moreover, unlike other negative side-effects of monetary policy, the fact that QE exacerbates wealth inequality is a direct consequence of that programme, as opposed to a consequence of a combined set of policies. Therefore, it falls to the ECB to deal with it.

Fundamentally, we would argue that the ECB has a responsibility to address the inequality consequences of its policy because this issue was predictable at the time it adopted it (thanks to previous QE experiments in the UK, US and Japan).

Last but not least, the ECB should address this issue because, all things being equal, it can do so. It could implement alternative policies that would both contribute to its price stability objective, while not increasing inequality. The proposal of the campaign QE4people for a citizens’ dividend would be one way to do so. Under such a scheme, the ECB could have injected a quarter as much money as under QE and distributed instead say €1,000 to all adult citizens in the eurozone. The measure would arguably have had similar effects than QE in boosting consumption and could be implemented independently by the central bank.

Admittedly, this is a rather bold proposal. But if central bankers are so creative when it comes to designing technically convoluted programs such as OMT, TLTROs, CSPP and negative interest rates, they can equally think seriously about adopting more citizen-friendly and inequality-hostile measures.

Clément Fontan and Stanislas Jourdan

Clément Fontan holds a PhD in Political Science from Sciences-Po Grenoble. His thesis dealt with how the ECB extended its political influence and attributions during the eurozone crisis. Now a post-doctoral researcher at the CNRS, his research focuses on inequalities generated by central banks and the crises of financial capitalism. Stanislas Jourdan is a writer and campaigner on economic justice issues. He organised the European Citizens’ Initiative on unconditional basic income and currently coordinates the campaign “Quantitative Easing for People” in the Eurozone.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u4219834675 4ff1 998a 404323c89144 1 Why Progressive Governments Keep Failing — And How to Finally Win Back VotersMariana Mazzucato
u42198346ec 111f 473a 80ad b5d0688fffe9 1 A Transatlantic Reckoning: Why Europe Needs a New Pact Beyond Defence SpendingChristophe Sente
u4219834671f 3 Trade Unions Resist EU Bid to Weaken Corporate Sustainability LawsSocial Europe
u421983467 9c73 b24a0b674750 1 The West’s Defence Now Depends on Trump’s Mood SwingsStefan Stern
u4219834674735ecb6fd43 0 The Dark Side Of The Boom In Last-Mile LogisticsSilvia Borelli

Most Popular Articles

u4219834647f 0894ae7ca865 3 Europe’s Businesses Face a Quiet Takeover as US Investors CapitaliseTej Gonza and Timothée Duverger
u4219834674930082ba55 0 Portugal’s Political Earthquake: Centrist Grip Crumbles, Right AscendsEmanuel Ferreira
u421983467e58be8 81f2 4326 80f2 d452cfe9031e 1 “The Universities Are the Enemy”: Why Europe Must Act NowBartosz Rydliński
u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko
startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer

ETUI advertisement

HESA Magazine Cover

With a comprehensive set of relevant indicators, presented in 85 graphs and tables, the 2025 Benchmarking Working Europe report examines how EU policies can reconcile economic, social and environmental goals to ensure long-term competitiveness. Considered a key reference, this publication is an invaluable resource for supporting European social dialogue.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
The evolution of working conditions in Europe

This episode of Eurofound Talks examines the evolving landscape of European working conditions, situated at the nexus of profound technological transformation.

Mary McCaughey speaks with Barbara Gerstenberger, Eurofound's Head of Unit for Working Life, who leverages insights from the 35-year history of the European Working Conditions Survey (EWCS).

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Summer issue of The Progressive Post is out!


It is time to take action and to forge a path towards a Socialist renewal.


European Socialists struggle to balance their responsibilities with the need to take bold positions and actions in the face of many major crises, while far-right political parties are increasingly gaining ground. Against this background, we offer European progressive forces food for thought on projecting themselves into the future.


Among this issue’s highlights, we discuss the transformative power of European Social Democracy, examine the far right’s efforts to redesign education systems to serve its own political agenda and highlight the growing threat of anti-gender movements to LGBTIQ+ rights – among other pressing topics.

READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641