ECB says its policies may be cutting, not increasing inequality

Years of ultra-easy monetary policy from the European Central Bank may have actually cut inequality through job creation that disproportionately benefited the poorest in the bloc, the ECB said on Wednesday.

The ECB has faced criticism that rock-bottom rates and its copious asset purchases mostly favour wealthy people who have ample financial assets and large mortgages, while penalising ordinary savers and families with few or no assets.

Critics also say that low rates have fuelled a housing boom that has made property, including renting, unaffordable for the poorest households.

In an article in its regular Economic Bulletin, the ECB acknowledged that inequality has risen steadily for decades, but said the underlying causes were beyond the scope of monetary policy and included factors such as globalisation, technological progress and changes in taxation.

It said its Asset Purchase Programme, which began in 2015, had helped reduce unemployment rates among individuals in the bottom 20% of earners by more than 2 percentage points. Jobless rates of all other income groups had meanwhile fallen by less than 0.5 percentage points.

“The decline in unemployment is found to be a substantial driver of wage increases across the income distribution, particularly in the lower quintiles,” the ECB said. “Overall, the labour market impact of the APP is estimated to result in some reduction in income inequality.”

The ECB added that when it comes to wealth inequality, the overall impact of its policies is neutral since the big impact is via housing, which tends to be fairly evenly distributed across income groups.