Europe is getting ready for green QE

Christopher Dembik
Head of Macroeconomic Research

Summary:  Based on a strict interpretation of the Treaty, the ECB can play a role to protect the environment

Are Australia’s fires our global wake-up call? This is a legitimate question considering the devastating impact of the natural disaster happening in Australia. As we enter a new decade, there is no debate that there are more and more frequent natural disasters in the world. Based on statistics released by “Our World in data”, there have been 335 natural disasters per year over the past 20 years, which is twice as frequent as 1985 to 1995. At the same time, the economic cost is quickly increasing. It reached $200 billion per year on average over the past ten years, which is four times more than in the 1980s. 

Chart 1 CDK

Chart 2 CDK

Change is coming from society and that is ultimately influencing politicians’ choices. The need for climate adaptations is reshaping the political landscape in Europe. Austria’s new government — a Conservative-Green coalition — is the first of many to come, and we would not be surprised if a Green-CDU/CSU coalition rises to power in Germany following the 2021 election. We think that Germany turning green will be the main political gamechanger in the coming years.

Climate consciousness is fueling public acceptance for more active fiscal and monetary policy. The speed of adjustment remains uncertain, but it has already influenced investors’ behavior. Over the course of the current economic cycle, fossil fuels sectors have significantly suffered. Looking at Europe, since 2008, the Europe STOXX 600 Oil & Gas index has dropped 25% versus the 14% rise seen in the STOXX 600. 

The slump is even bigger in the United States. Over the same period, the Dow Jones Coal Index decreased by 95% while the benchmark index skyrocketed by 120%. Of course, not all of this evolution can be only attributed to the rise of green capitalism — but it has certainly played a key role. 

Chart 3 CDK

Chart 4 CDK

In our view, the next step will be the implementation of a massive monetary and fiscal climate package, but that is more likely in 2021 than 2020. Over the past months, most central banks have pointed out the importance of climate change, such as the Bank of England which has warned of “a climate Minsky moment”. 

The ECB is also embracing this issue. We believe the review of the framework that is about to start will be the best opportunity to include climate change. In her most recent letter to the EP, ECB Lagarde clearly stated her intentions: “the intended review of the ECB’s monetary policy strategy…will constitute an opportunity to reflect on how to address sustainability considerations within our monetary policy framework”. 

There is already an emerging debate on whether climate change should be part of the ECB’s mandate. If we rely on the Treaty, the primary objective is defined as price stability. However, it also mentions that “without prejudice to the objective of price stability, the European System of Central Banks shall also support the general economic policies in the Union with a view to contributing to the achievements of the objectives of the Union”. Among these objectives, it is specifically stated that Union policy prioritises a high-quality environment (Article 3 (3) of the Treaty on the European Union). 

Based on a strict interpretation of the Treaty, the ECB can play a role to protect the environment — for instance by launching a green QE — as long as it does not enter into conflict with the primary objective of price stability. Considering the level of realised inflation and the level of expected inflation in the euro area, it is very unlikely that the risk of potentially conflicting goals will be raised anytime soon. 

However, green QE from the ECB is not going to save the planet and decarbonise the economy by itself. The ECB has mostly three options to launch green QE:  

  1. Favouring green bonds as part of the revived QE programme. But there is just not enough issuance out there yet. 

  2. Applying a punitive “haircut” to bank collateral assorted to high carbon intensity activities. But this will further weaken the European banking sector.
  3. Targeting transition bonds for dirty companies that try to become greener. But this raises concerns among climate activists. 

Contrary to what has happened over the past 10 years, central banks cannot be the only player in town to fight climate change. Governments will need to step in —and the current evolution of the yield curve is creating a very attractive environment for fiscal stimulus oriented to fund green projects.  

Get the full report


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.