On 14 February 2026, the Governing Council of the European Central Bank (ECB) published a short press release. It received almost no attention (presumably because it was released on a Saturday), yet it is of enormous significance; and it unfortunately confirms the expectations of all those who anticipate an increasingly inflationary euro. The press release states, in short, that the ECB Council no longer wishes to conduct monetary policy solely for the euro area but de facto for the entire world: from July 2026 onwards it will offer new euros to all central banks worldwide through an expanded “Eurosystem Repo Facility for Central Banks” (EUREP).
In doing so, the ECB Council is essentially declaring its willingness to further intensify the already high loss of purchasing power of the euro. I shall now explain why and how.
To start with, it must be noted that for some time the ECB Council has concluded so-called “liquidity swap agreements” with other central banks around the world and, since June 2020, has also conducted so-called “repo transactions” with central banks from other countries.
What are liquidity swap agreements? Under liquidity swap agreements, central banks lend each other their own currencies. For example, the U.S. central bank lends U.S. dollars to the ECB, and in return the ECB lends euros to the U.S. central bank. At the end of the term (which may be one week, one month or longer), the central banks repay the respective amounts they have meanwhile lent to commercial banks or other financial market participants. The whole process is therefore (a rather grotesque) creation of money out of nothing, collateralised by money that has also been created out of nothing—in other words, expansion of fiat money quantities made possible by expansion of fiat money quantities. The ECB’s euro liquidity swap agreements date back to 2007, have since been extended and redesigned several times, and were even made permanent in 2013.
What are repo transactions? Repo is short for “Repurchase Agreement”, i.e. a sale-and-repurchase transaction. In a repo, the ECB buys selected debt securities on a temporary basis (overnight, for one week or one month) from a central bank or commercial bank, which in return receives newly created euros from the ECB. At the end of the term the transaction is reversed: the bank repays the euro amount to the ECB and receives back the debt securities that were lodged as collateral. The debt securities eligible for ECB euro repo transactions are euro-denominated government bonds and euro-denominated debt issued by supranational institutions (such as the World Bank).
What is new is the following: the ECB now intends to conduct repo transactions with all central banks in the world (with the exception of those under sanctions, such as the Russian central bank, or engaged in money laundering). Exact details on amounts, interest rates, etc., have (so far) not been made public.
Why do ECB swap lines and ECB repos exist at all? They are intended to serve as a kind of insurance for the financial markets: the ECB promises foreign central banks and commercial banks that it will make new euros available in case of need or emergency, thereby—according to the official justification—preventing liquidity shortages and the crises that would follow in the capital market.
What may at first glance appear harmless, perhaps even sensible and good, turns out on closer inspection to be highly problematic. For the negative consequences of liquidity swap agreements and repo transactions are extremely far-reaching. Here are some of them.
Liquidity swaps and repos increase the euro central-bank money supply (primarily for the economic benefit of the banking and financial industry). Yet any such expansion of the money supply is inevitably inflationary: it causes goods prices to be higher than they would have been had the money supply not been expanded. Liquidity swaps also increase the commercial-bank money supply when the created central-bank money balances are used by the banks for lending.
It is also foreseeable that the ECB Council, by expanding the repo framework, will massively accelerate the inflation of the euro, especially in times of financial crises. For the possibility of obtaining new money from the central bank virtually at any time (whether through liquidity swaps or repos) fuels the risk appetite of investors and tempts them, for example, to grant loans to states at interest rates that do not cover the actual credit default risks.
The ECB thus creates “moral hazards”, which lead to price distortions and capital misallocation. One can even say that the ECB, with its measures, sows the seeds of the crises that it then promises to mitigate with measures that themselves cause crises—the apt comparison is a fire brigade that pours petrol on the fire and claims it wants to extinguish the fire it has started.
Moreover, the mountain of debt that will have to be “rescued” from collapse in the “next crisis” is artificially enlarged—and the inflationary potential rises accordingly. For the following must be borne in mind: central banks around the world will in future be able to obtain new euros from the ECB against the pledging of debt securities previously issued by euro-area states. This increases the attractiveness of euro government debt for foreign central banks and investors—because euro government bonds become “almost” as good as money; they can now be exchanged for euro money at the ECB without any problems.
This strengthens demand for euro government bonds from foreign investors. The investor base for euro government debt is also likely to broaden (if the ECB plan succeeds), and the borrowing costs of euro-area states will be artificially lowered. It thus becomes even easier for euro-area governments to drive up their countries’ indebtedness. The financing of the already over-indebted euro-area states is artificially cheapened, and governments are encouraged to borrow even more recklessly.
The same can also be viewed from another perspective: foreign investors are lured into investing their savings even more heavily than before in euro government bonds. More savings from abroad are thus to be made available than before to finance government mismanagement in the euro area.
Above all, however, the expansion of euro repo transactions must also be seen as an attempt to extend the use of the euro beyond the current euro area. ECB central bankers in Frankfurt apparently want to challenge the world-reserve status of the U.S. dollar: With effortless access to ECB euro credit, the ECB Council wants to increase global demand for the euro. The ECB Council presumably hopes that it will become more attractive for international banks and large corporations to conduct transactions in euros rather than U.S. dollars. So far, however, the euro as an international transaction currency still lags far behind the U.S. dollar; and no rise of the euro is in sight. Whether the ECB can make the euro more attractive with a now enlarged repo programme is highly doubtful.
Finally, here is a brief illustration of how repos actually affect the money supply. Suppose commercial banks outside the euro area (say in Denmark) obtain euros by issuing euro-denominated bonds on the capital market (because, for example, they want to finance a euro loan). The bonds then fall due. The Danish commercial banks have no euros, however, because they assumed they could refinance maturing euro bonds by issuing new euro bonds. But it turns out that they cannot obtain euros in the market. They are therefore unable to service their maturing liabilities and now face illiquidity.
The domestic central bank (in this case the Danish Nationalbank) cannot initially help the Danish commercial banks because it cannot create new euros itself; it can only create Danish kroner. But if it holds euro government bonds in its reserve portfolio, the Danish central bank can obtain new euros from the ECB against these bonds and lend the euros to the domestic commercial banks. The financing gap of the Danish banks is thus plugged. The Danish central bank therefore has an incentive (to support the domestic banks) to demand euro government bonds as part of its foreign-exchange reserves and thereby secure emergency access to euro money.
However, the ECB expands the euro central-bank money supply through the repo transaction, and the repayment of the bonds by the Danish commercial banks additionally increases the euro commercial-bank money supply. The whole process is therefore inflationary, and the citizens of the euro area foot the bill, since their purchasing power is reduced.
What if the repo transaction is reversed? Well, the newly created euros are then withdrawn again. It must be expected, however, that the market has meanwhile calmed down again and that euro commercial banks are now willing to refinance the Danish banks’ euro bonds. This means that euro banks now obtain new euros from the ECB, the money supply rises again, and the whole process remains inflationary.
Why now, one may ask, is the new framework of ECB repo transactions with foreign central banks being launched? Answer: Euro government debt has become unsustainable, indeed is already unsustainable, were it not for the ECB’s artificial suppression of euro interest rates. And now the failing states also want to cover the looming bankruptcy with even more debt, finance a war economy with new debt, paid for with new euros created out of nothing. With expanded repo transactions the ECB Council therefore wants to increase demand for euro government bonds and tap foreign savings even more heavily. If successful, the financing of the new budget deficits comes from existing money and is therefore not per se inflationary.
In future crises with bond sell-offs, the ECB will likely need to provide even more aggressive monetary support than in past episodes—after all, the ECB Council’s active support allows the euro government debt mountain to rise even further. In a crisis the ECB will therefore have to buy even more securities to prevent a politically unwanted rise in interest rates; and it will therefore have to expand the euro money supply even more strongly—whether through liquidity swap agreements or repo transactions (or through outright purchases of debt securities).
It may not yet be openly apparent, but the ECB Council has now ignited the inflation turbo, and it is probably only a matter of time before the ECB's electronic printing press spins into overdrive, eroding the euro's purchasing power even further.
If you want to learn more how to invest your money, then read Dr. Polleit’s BOOM & BUST REPORT. All information at www.boombustreport.com.
