Governing Council meeting: with a new strategy on the old course


Status: 07/22/2021 7:00 p.m.

Despite the upturn in the economy, the ECB is sticking to its ultra-loose monetary policy – thanks to a new strategy and powerful arguments. The goal of price stability will thus be further weakened.

By Klaus-Rainer Jackisch, hr

It was an insecure Christine Lagarde who appeared before the press after the council meeting of the European Central Bank (ECB), repeatedly stalled and tried to sell the results well. Thereafter, the ECB is sticking to its ultra-loose monetary policy despite the significant economic recovery, is allowing the PEPP Corona emergency program to continue and even wants to increase the speed of bond purchases in the third quarter. Lagarde’s reasoning: The delta variant of the corona virus poses such a great threat to economic development that companies still have to be supplied with sufficient and cheap liquidity.

The new inflation target has it all

For the first time, the Governing Council made its decisions in the light of the new strategy, which it had discussed in a luxury hotel in the Taunus, adopted and then published two weeks ago. The core of this new strategy is the inflation target, which is now exactly two percent. So far, the monetary authorities have aimed at a price increase that is “below, but close to two percent”.

The difference to the old formulation seems to be succinct and insignificant. But it has it all: Because the mark of exactly two percent is hardly reached anyway, greater deviations up or down are accepted in the medium term – and that for a longer period of time. In fact, the ECB is ready to tolerate higher inflation in the future. In the event of severe economic weakness in the euro zone, “this requires a particularly strong or persistent monetary policy in order to prevent inflation below the target from becoming a habit,” says the ECB’s communiqué on the strategy decision: “This can be temporary Time also cause a moderate overshoot of the inflation target. ”

More freedom to do nothing

Critics argue that the ECB has not achieved its self-imposed goal for years and is now simply adapting its strategy to the circumstances. This may be. But another aspect is likely to be much more important for the monetary authorities: With the new strategy, the ECB can now very easily justify its non-intervention even in the event of a significant rise in inflation – as is currently the case. Despite the strong economy, it is not raising interest rates and is sticking to its bond purchases. The new strategy thus virtually justifies the continuation of the controversial, ultra-loose monetary policy. This is also likely to be the actual goal of the innovation.

This does not mean anything good for consumers in the euro zone: the interest rate turnaround is still not in sight, and there will probably not be any income for savings for a long time. Much worse, however: this policy accelerates currency devaluation. The inflation rate in the euro area is currently 1.9 percent, in Germany it is 2.3 percent. If you believe the Bundesbank’s calculations, it should rise to more than four percent in this country by the end of the year. If the ECB does not intervene, the citizens will clearly feel it in their wallets.

Also worrying: the ECB policy is accelerating the social imbalance across Europe. Because high inflation hits people with low incomes particularly hard because it means that they have to put all of their money into consumption. The argumentation of the monetary authorities that their interest rate policy is a boon for everyone who wants to buy an apartment or house is hardly credible any more. The financing may be cheap, but many can no longer buy the property because the prices are rising so much that they are hardly affordable.

The ECB makes politics

The new strategy does not only refer to the inflation target, but also to other aspects of monetary policy. Particular attention is paid to another innovation, according to which the consequences of climate change should also be reflected more strongly in monetary policy in the future. This could be done, for example, by paying more attention to whether the companies are environmentally friendly or not when buying corporate bonds. The ECB justifies its position with the fact that climate aspects have a direct influence on price stability. If, for example, the flood disaster in Germany and other Western European countries leads to higher government spending and investments to repair the damage, inflation could be driven, for example.

However, critics are not very convinced of this justification. They demand that monetary policy must continue to be neutral and stay out of political ambitions. One could argue with equal rights that other political demands also have an impact on prices and should therefore be taken into account by the ECB. For example, poor working conditions and social dumping also have an impact on wages and thus on prices.

So there remains a lot of uneasiness for the citizens of the Eurozone: The premise that is held again and again in Germany that prices should not rise too sharply in order to prevent inflationary tendencies is being weakened, the zero interest rate policy is being given a new legitimation, an interest rate turnaround can now be postponed even more easily to Saint Never’s Day – and the central bank itself becomes much more political, although its representatives are not elected and actually have no mandate for it. Christine Lagarde is quietly turning the ECB into an institution that is close to the citizen, but essentially not close to the citizen – at least when measured against the prevailing desire of society that monetary policy should finally normalize again after more than ten years of crisis.

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