Texts on the Debate over Emergency Liquidity Assistance (ELA) Credit

False information on ELA credit gained currency among several economists. It was argued that the national central banks granting ELA credit were owed interest on it and that, this being the case, other central banks in the Eurosystem were not exposed to any risk if this credit was not repaid (cf. for example, an article by Martin Hellwig). They would only be losing something that they had no right to in any case. This being the case, the ECB could afford to be very generous with ELA credit. But that is not true. Clemens Fuest and Hans-Werner Sinn show that interest income generated by ELA credit lower than and equivalent to that of the main refinancing rate is indeed subject to socialisation in the Eurosystem. They argue that individual central banks receiving ELA must be liable for this interest, but cannot be held liable if the volume of ELA credit granted exceeds the standard volume of money that the central bank in question is authorised to create, as determined by its capital key and equity capital. In this respect the ECB is delaying central bank insolvency by not imposing ELA credit limits.

This controversial issue was preceded by another in January 2015. Sinn had argued in the Süddeutsche Zeitung that the ECB would be delaying bankruptcy if it did not limit ELA credit due to the lack of recoverable assets held by individual central banks. Hellwig contested Sinn’s arguments in an article for the Süddeutsche Zeitung (“Der Vergleich hinkt“ (The Comparison Is Misleading), Süddeutsche Zeitung, 23 February 2015, p. 18). Frank Westermann, who supported Sinn’s arguments, wrote another article for the Süddeutsche Zeitung in response to Hellwig.