What to make of the new ECB strategy?
The European Central Bank has introduced a new strategy for monetary policy. The inflation target is to remain at around two percent, but future fluctuations below or above will be tolerated. Two percent was previously the maximum. Next year the ECB also aims to present a plan of action that incorporates climate change into monetary policy.
More flexibility at last
Even without the pandemic, this adjustment was long overdue, stresses El Economista:
“The need to adjust the targets did not arise from this crisis. On the contrary, this move has been pending for years. As demonstrated by the fact that since 2013 the institute has never managed to meet its target of keeping inflation 'below, but close to, 2 percent'. ... The new flexibility is particularly welcome at a time like now, when inflation is rising. This new target is clear and allows for temporary deviations, thus avoiding the mistakes of the past crisis.”
It's not the Germans deciding anymore
The ECB's monetary strategy is less radical than expected, The Financial Times observes:
“This may be the price of consensus. ... It may also be testament to Lagarde's political skills - her predecessor Mario Draghi was often more explicitly provocative to the representatives of the more hawkish member states. ... Overall the package is an overdue step on the ECB's journey to become a more normal central bank rather than a 'Greater Bundesbank'. The changes to its target are modest and reasonable.”
A bad idea in the long term
The arguments for softening the inflation target are debatable, interjects Corriere del Ticino:
“The ECB is the product of a European tradition that has a very low tolerance for inflation but has nonetheless gradually raised the threshold, apparently overcoming the internal resistance of the German Bundesbank and other northern European institutions. ... For the ECB, as for the Fed [in the US] and other central banks, low inflation means there is not enough economic growth. ... However, countries like Switzerland, Germany and other northern European countries have shown how a very low level of inflation, which better protects real wages and provides more security for consumption and investment, can coexist with a good level of economic growth.”
Bankers should keep out of politics
The ECB also wants to factor climate protection into its monetary policy. In so doing, it runs the risk of overstretching its mandate, warns the Frankfurter Allgemeine Zeitung:
“An independent central bank should not presume to do politics in areas that are the preserve of elected politicians and for which elected politicians hold responsibility. ... In the description of its new strategy, the ECB is very vague about how far it intends to go in the future in actively supporting objectives other than safeguarding monetary stability.”