Leonardas Marcinkevičius // 27 October 2026

The European Central Bank says it has learned lessons from the pandemic. In this paper, Leonardas Marcinkevičius of the Lithuanian Free Market Institute tests that claim against euro area data on interest rates, the ECB balance sheet and money supply from 1999 to 2025.

He finds that the post-pandemic tightening did not withdraw money from circulation. It only paused new money creation, as funds moved from current accounts into term deposits. Once the ECB began cutting rates in June 2024, M1 and M3 started growing again, repeating the pattern that came before the inflation surge. He concludes that while a single institution sets key interest rates, a truly neutral rate cannot emerge and the conditions for future inflation cycles remain.

Key points

• The 2022–23 tightening halted money creation but did not reverse it.
• Money supply growth resumed in 2024 after the ECB returned to rate cuts.
• The ECB’s 2024 operational framework signals a retreat from quantitative easing, but money supply remains institutionally managed.
• Asset-price inflation over the past decade has favoured existing capital owners, a classic Cantillon effect.
• The ECB still responds to short-term pressures instead of holding a stable monetary path.