ECB moves to structural operations and builds a new liquidity architecture – this will now be based on market principles, without asset purchases or bank subsidization. President Joachim Nagel, during the 20th Walter Eucken lecture, made a number of strategic statements, confirming the gradual transition from active QE programs, implemented in a near-zero rate environment, to structural, market-neutral instruments for covering the banking system’s long-term liquidity needs. At the same time, he outlined a shift away from using the balance sheet as a monetary tool and emphasized the primacy of steering through key interest rates. He also noted that monetary policy decisions are being made in a context of heightened uncertainty, including the consequences of US military strikes in Iran and the evolution of the United States’ trade policy.
WEEX is currently running one of the strongest welcome offers out there: 20% deposit bonus & Up to $30K in trading rewards.
If you’re going to trade anyway, why not get rewarded like this?
ECB Structural Operations: A New Format for Liquidity Provision to Banks
Let’s examine what this means and what consequences it may carry. One of the central elements of the updated framework is the structural longer-term credit operations. Their purpose is to cover the forecastable and structural liquidity needs of the banking system, driven by autonomous factors such as demand for cash or mandatory reserve requirements.
At the same time, Nagel emphasized that these instruments aren’t intended to refinance individual Member States, banks, or enterprises, nor are they aimed at stimulating credit issuance. The entire construction excludes elements of hidden subsidization, in line with the principles of an open market economy and free competition.
The operations will be conducted based on a variable rate tender procedure. This means the final funding rate will be determined on a market basis, reflecting the alternative funding cost for banks. The ECB will also limit the maturity of liquidity provision and the volume of individual bond purchases to minimize price signal distortions and preserve market incentives.
A structural securities portfolio is also envisaged for a later stage. In particular, the possible exclusion of corporate bonds is being considered, as their primary beneficiaries tend to be large enterprises with access to capital markets, which could undermine the principles of equitable resource allocation. Special attention is also given to the risk of weakening fiscal discipline when purchasing government bonds — this issue is likewise being addressed in the design of the future framework.
From QE Wind-Down to Rate-Based Normalization – Past Risks Realized
Although the ECB has already lowered key interest rates eight times since June 2024, the passive wind-down of its asset purchase programs (APP and PEPP) continues. According to Nagel, this exerts a moderately tightening effect that is already factored into inflation forecasts and reflected in the configuration of the interest rate corridor. The key shift in the monetary policy strategy lies in the fact that economic management is now carried out exclusively through key interest rates, without additional asset purchases.
As Nagel stated:
“The Eurosystem is now effectively steering its monetary policy stance via key interest rates.”
He also openly acknowledged for the first time that the previous QE strategy involved substantial interest rate risk on the balance sheet: the yields on securities acquired under QE were fixed, while the liabilities – namely bank deposits remunerated at the deposit facility rate – were variable. This risk materialized following the rapid rate hikes in 2023–2024, resulting in balance sheet losses for both the ECB and the Bundesbank.
Nevertheless, he emphasized:
“These losses do not restrict our ability to maintain price stability.”
Decisions by the ECB Governing Council remain guided exclusively by the price stability mandate, even when such decisions carry financial costs.
Assessing the Current Stance: Rates at the Center, Outlook Cautious
To assess the current stance, the ECB uses the concept of the “natural interest rate” – the theoretical real rate at which the economy operates at potential output under conditions of stable prices. According to ECB estimates, this range stood at 1.75% to 2.25% at the end of 2024, while the current deposit facility rate is 2%. In Nagel’s view, this suggests that the ECB’s monetary policy is in neutral territory, though any such estimates are subject to considerable uncertainty.
Special emphasis was placed on the unpredictability of external factors — most notably the consequences of US military strikes in Iran, as well as changes in United States trade policy. These may exert either inflationary or deflationary effects on the euro area, depending on retaliatory responses, exchange rate dynamics, and the condition of global supply chains.
This is why the ECB has shifted toward a flexible, step-by-step adjustment strategy based on incoming data: “data-dependent and meeting-by-meeting basis.” Interest rate projections are no longer published in advance but are instead determined based on macroeconomic assessments and a wide range of indicators.
WEEX is currently running one of the strongest welcome offers out there: 20% deposit bonus & Up to $30K in trading rewards.
If you’re going to trade anyway, why not get rewarded like this?
Conclusion
The ECB’s shift to structural operations, its move away from QE, and the establishment of a new liquidity architecture grounded in market incentives mark a fundamental change in the approach to monetary governance. Interest rates now serve as the sole tool for anchoring inflation expectations, while excess liquidity is gradually withdrawn without interfering with market prices.
From a practical standpoint, the transition from asset purchases to structural tenders means that liquidity will be distributed via competitive procedures rather than through guaranteed access. This raises the importance of funding cost, influencing investment behavior both in the traditional sector and in adjacent digital asset markets.
In this sense, the retreat from directive control, the limitation of intervention in resource allocation, and the focus on autonomous market signals form a mutually intelligible framework between monetary discipline and the architecture of decentralized systems.
