Worst Performance in History! European Central Bank Records Third Consecutive Year of Losses, Setting Longest Losing Streak Since Its Establishment

Dragged down by the lingering aftereffects of crisis-era policies, the European Central Bank has reported an annual loss for the third consecutive year, marking the longest losing streak since the institution’s founding.

According to a Bloomberg report, the European Central Bank announced in a statement on Thursday that the loss for 2025 amounted to 1.3 billion euros (approximately 1.5 billion USD). This result represents a significant narrowing compared to the previous year’s record loss of 7.9 billion euros, the highest in history.

The European Central Bank reiterated that it can continue to operate effectively regardless of whether it incurs a loss. As in previous years, the funding shortfall for 2025 will remain on the ECB’s balance sheet to offset future profits. As a result, the ECB will not distribute profits to the national central banks of member states this year.

Regarding its future financial outlook, the ECB expects to return to profitability in either this year or 2027. The specific timing will depend on future ECB key interest rates, foreign exchange rates, as well as the size and composition of its balance sheet.

“Aftereffects” of Crisis Policies and the Outlook for Quantitative Easing

Like other major central banks, the ECB is currently paying more in interest than it earns from bonds acquired at low borrowing costs during past emergency periods. Although this asset-liability mismatch is expected to persist, with inflation stabilizing near target levels, policymakers have cut the benchmark borrowing cost from 4% to 2%, and the continued contraction of the balance sheet has made this financial pressure less acute.

Consecutive losses have also sparked discussions about the independence of central banks and their policy tools. Some policymakers have urged greater caution regarding future asset purchases, and the market has even speculated that the central bank may ultimately require government capital injections, which would threaten its independence.

In last year’s strategic review, the ECB retained all policy tools, including quantitative easing (QE), without specifying the circumstances under which they should be used. However, comments in the review and statements from some officials suggest that, considering the chain reactions of losses and asset bubbles, the use of quantitative easing may become more restrained in the future.

Gold and Forex Market Volatility Impact the Bottom Line

Sharp fluctuations in gold and foreign exchange rates had a significant impact on the ECB’s profitability last year. Driven by rising prices, the euro-denominated value of the ECB’s gold reserves grew substantially by 46%, reaching a total just under 60 billion euros.

Meanwhile, the ECB’s holdings of US dollars and Japanese yen declined, mainly due to depreciation of the dollar and yen. As part of a routine rebalancing of forex reserves, the ECB sold US dollars in the first quarter of 2025 (UTC+8), realizing a profit of 909 million euros, and reinvested all these funds into Japanese yen.

It is worth noting for investors that although the ECB still has some provisions to guard against the risk of a future weakening of the US dollar, its buffer funds to cope with further declines in the yen have been completely exhausted. This means that if the yen continues to depreciate in the future, the ECB will be directly exposed to new loss risks.