While the central banks in the US, England, and Canada are selling off their debt, taking liquidity out of the economy, the ECB has yet to sell a single bond.
Most central banks service only one, their national debt. The ECB has as many as 19 bond markets, bringing together countries with different economies. The bank sets its key rate and prints euros, but it does so based on the union average, and the figures can vary widely within the EU. For example, inflation in Estonia was 22% in October and 6.2% in France.
The toughest shackle for the ECB is the aftermath of the debt crisis of the 10s. The continent abounds with countries with high public debt (in % of GDP: Greece – 193, Italy – 151, Spain – 118). They are unable to raise or lower interest rates on their own to regulate inflation or stimulate economic growth. And raising the rate is painful for them – it will become even harder to service the debt – so it’s not far to the second crisis.
That’s why the ECB has been actively buying Greek or Italian bonds this year, supporting their economies with infusions of euros. If the bank starts selling these securities, it will cut off the main channel of financial support to the countries.
And so it turns out that it is only possible to sell bonds of notional Germany and the Netherlands, and invest the proceeds in the purchase of bonds of peripheral European countries. In such a situation, the ECB has only to raise rates little by little, it has fewer tools to fight inflation than the Fed.