The European Central Bank’s new strategy is a welcome update


For a long time, the European Central Bank has stood out among the ranks of global central banks because of its hawkish tendencies. The central bank’s price stabilization task-enshrined in an international treaty-was interpreted as a call for inflation to remain close to but below 2%.result ECB’s strategic reviewFor the first time since 2003, it is a modest but welcome update that not only helps make the institution more traditional, but also makes its goals clearer.

The publication of this comment represents the next step in the introduction of the Bundesbank’s conservative monetary policy into the institution.The European Central Bank will now have a Symmetric inflation target; In the words of President Christine Lagarde, inflation below or above 2% would be “just as unpopular.” In addition, if continued close to zero interest rates threaten the credibility of the central bank to reach its inflation target, the central bank will tolerate a transitional period of “overshoot”.

In addition to having clearer advantages, the new target also discards the hawkish bias of the central bank. This makes sense. Since the 2008 financial crisis, the European Central Bank has been below its inflation target. In fact, the Eurozone often faces deflation, which is an indicator of the degree of excessive unemployment and underinvestment in the single currency area. A more aggressive approach — the central bank was one of the last major institutions to accept quantitative easing — could lead to a stronger and stronger recovery. On Thursday, Lagarde said that new unconventional tools such as quantitative easing will remain part of the ECB’s arsenal.

However, this change is not as radical as many people expected, and certainly does not represent a complete reform of monetary policy. Different from the Fed, The European Central Bank will not aim at “average inflation” and allow prices to rise faster to make up for past deficiencies. The change in the inflation measure that included housing in their choice was limited to the “owner-occupied housing cost”—usually only moderately changed year by year—not actual housing prices. The “Climate Action Plan” is no more extreme than checking whether the behavior of the companies it purchases bonds is consistent with the Paris climate agreement.

This may be the price of consensus.Review is Almost two months to complete Exceeding plan-may indicate that there is no strong disagreement among the management committees, including the heads of the central banks of the eurozone countries.This may also prove Lagarde’s political skills-her predecessor Mario Draghi often provokes more clearly Representatives of more hawkish member states.

However, the politics of a more moderate framework may be as difficult as economics. The more active European Central Bank depends on the support of the German government: even during the Eurozone crisis, Draghi could count on Germany when he clashed with former German Finance Minister Wolfgang Schaeuble, the Bundesbank and members of the German parliament. The support of Chancellor Merkel. The next prime minister is unlikely to have her position or dominance in European politics, but the independence of the institution must also be defended.

Overall, the package is an overdue step in the European Central Bank’s journey to become a more normal central bank rather than a “bigger German central bank”. The change in its goals is moderate and reasonable. However, they cannot replace meaningful actions. The ECB now has a better goal; whether it can be reached is another matter.



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