Monetary policy: The European Central Bank is loosening up on inflation

The monetary policy strategy of the European Central Bank (ECB) will normally never concern as many people as the question of whether the national coach should play with a back three or four. Anything else would also be highly questionable.

But at least temporarily, the priorities of Germans could shift in the near future. Not only because the question of the chain of defense after the elimination of the DFB-Elf at the European Football Championship has become obsolete. But because of what the ECB President Christine Lagarde announced this Thursday for the lives of the people in Germany and continental Europe is far more important.

For the first time since 2003, the ECB has completely overhauled its strategy. She has decided on changes that are in line with what has been expected for months. Nevertheless, they are historical. They boil down to the fact that consumer prices will continue to rise for the time being and that the ECB will maintain its loose monetary policy. They mean turning away from the old Bundesbank-Traditions and deliver campaign ammunition to critics of the ECB in Germany.

In essence, it is about three things that will change monetary policy permanently in the long term.

Better inflation than deflation

First, the ECB wants to tolerate inflation temporarily "moderately" above two percent. Up to now, two percent was the level above which the ECB had to raise key interest rates. which it has always missed in recent years. Instead, it sometimes had to grapple with deflation, i.e. falling prices. In the future, it will be able to let prices run for a while without having to increase interest rates - just as it had to accept in the meantime that prices would stagnate or fall.

How long exactly the ECB will allow inflation to fluctuate “symmetrically” downwards, but above all upwards, remains uncertain. In such a case, central bankers speak of “discretionary” leeway that they allow themselves.

Zero interest rates and bond purchases - the instruments with which the central bank has been operating in a state of emergency for years will be retained. And the flexibility to extend this state of emergency increases. In September at the earliest, the ECB will decide whether, when and how to get out of the crisis policy. It is also clear that the ECB will not slow the rise in consumer prices by raising key interest rates for the time being. The savings book popular with Germans will continue to yield little or nothing, but real estate loans are likely to remain cheap.

With its new strategy, the ECB is getting closer to the US Federal Reserve (Fed), which also tolerates an overshooting of inflation, but falls back on a longer-term average. The two most important central banks are changing their strategy because, after years of low inflation, the loose monetary policy, but above all the violent economic upturn in the post-corona phase, is driving prices above two percent.

Critics will conclude from this that the ECB is throwing overboard the remnants of the Bundesbank's price stability doctrine, which was the foundation of the monetary institution when the currency institution was founded, and instead accommodating the highly indebted southern countries, which could get into greater difficulties as soon as the ECB raises key interest rates .

Medial barrage

Gazettes like »Bild« have been drummed excitedly for weeks against the alleged expropriation of savers by the ECB, which is dominated by southern Europeans. Paul Kirchhof, Ex-judge on Bundesverfassungsgericht, recently went one step further. That the ECB charges “penalty interest” as soon as banks deposit money with it overnight, and the banks in turn demand the same “penalty interest” from savers on their assets, he considers unconstitutional.

The expropriation charge is as old as it is legally and economically bizarre. And he ignores the fact that the ECB is even secretly supporting the banks. It is true that it demands 0,5 percent negative interest rates from banks; At the same time, however, it lends them fresh money with a one percent discount. The banks can collect the difference of 0,5 percent as profit, a billion dollar business.

The attacks on the ECB are fueling the debate over the central bank. CDU shadow finance minister Friedrich Merz accuses the ECB of prohibited public financing, which AfD wants Germany to leave the EU and return to the D-Mark. For many conservative the ECB has long been the economic godfather. This is guaranteed not to change with the new strategic decision.

To the President of the Bundesbank Jens Weidmann The hardliners obviously cannot support themselves. Weidmann no longer offered any resistance to lax inflation targets, otherwise the ECB would not have been able to agree on a new strategy so quickly; originally this was only expected for September.

On the other hand, a lot has changed fundamentally since the old days of the Bundesbank: Digitization, globalization and the aging of society are reducing the demand for money and thus inflationary pressure. These factors should outlast the current price pressures and ensure that inflation does not gallop away in the long run. In addition, the ECB's long-term inflation target is still two percent. It will have to be measured by this.

Inflation is recalculated

The second change in strategy: the ECB wants to calculate inflation differently in the future. The cost of living space that you use yourself - in other words, above all the cost of real estate loans and rental costs are already factored in - should be included in the calculation. This is a sensible step in view of the fact that property prices are rising rapidly, especially in Germany, the largest country in the euro zone.

Critics of the ECB will recognize that the central bank has given way to reality. In fact, the move was overdue. The "felt" inflation has been deviating more and more from the officially measured value for years. Feelings are a hindrance when it comes to making monetary policy. But for the ECB it is also about its credibility vis-à-vis its "customers", the consumers in the euro zone. And the ECB cannot overlook the relevance of rising real estate prices.

However, the move increases the likelihood that the ECB will get out of its lax monetary policy at some point. Because in the future it will tolerate inflation rates higher than two percent at times - but by including housing costs, inflation will also be higher. In this respect, the ECB could be forced to change its monetary policy more quickly than it seems today.

Third, the ECB wants that Climate Protection give more weight to their monetary policy. The Governing Council had "decided on a comprehensive action plan with an ambitious roadmap for further incorporating climate protection considerations into its monetary policy framework," the central bank announced Frankfurt am Main mit.

Here, too, the ECB remains vague. But where the journey will go is clear. For some time now, it has been accepting corporate bonds with interest coupons linked to sustainability goals as collateral for loans. This makes it easier for companies to refinance their businesses.

Adaptation to the zeitgeist?

The Deutsche Bank subsidiary DWS considers this decision to be "the most far-reaching". "The ECB is going very far and is supporting the EU in its climate policy goals," the experts write. "Just the announcement today could spark a signal."

ECB critics warn that the central bank is submitting to the zeitgeist and interpreting its mandate too far-reaching. The green European politician Sven Giegold immediately cheered: "The ECB's monetary policy is becoming greener and closer to life."

On the other hand, one of the tasks of the ECB is to support the political goals of the EU Commission. And Commission President Ursula von der Leyen has set itself the goal of ecological restructuring of the European economy with the “Green New Deal”.

It is the same as always when it comes to the ECB: everyone always sees what he wants to see in its monetary policy; Counter-arguments are often hidden. Almost like in football.