Et is a decision of historic significance: for the first time in 20 years, the European Central Bank (ECB) has adopted a new strategy for monetary policy in the euro area.
The most important change concerns the core of the ECB's mandate: in future, the euro currency authorities are aiming for an inflation rate of two percent. It replaces the previous, always somewhat bulky formulation of “close to, but below two percent”. At the same time, the central bank wants to allow this target to be exceeded temporarily in the future. "The new wording makes it clear that the two percent is not an upper limit," said ECB President Christine Lagarde at the press conference on the change of strategy, which was called at short notice.
What sounds like a nuanced change at best means a decisive break with the previous monetary policy reading in the tradition of the former Bundesbank. For decades, the main concern there was to prevent excessive inflation.
But the ECB has achieved the goal it has set itself in recent years, in which the financial crisis, Euro crisis and finally the pandemic forced politicians to act, not exceeded but fell short of. Again and again, a threatened price decline on a broad front, the so-called deflation, was an issue for the money guardians - and not the former feared opponent inflation.
Nevertheless, some economists are warning of the consequences of the now completed strategic shift towards a so-called symmetrical monetary policy. "Because inflation below two percent is now just as bad as inflation over two percent, it will be even easier for the ECB Council to justify a continuation of the extremely loose monetary policy and bond purchases in the coming years," said Friedrich Heinemann from Mannheim ZEW. "Also the explicit reference that a moderate exceedance of the target may have to be accepted for a transitional phase, further weakens the binding nature of the target as an upper limit."
However, this could shift the priorities further and further: Away from the creditors and towards a monetary policy that tends to allow more inflation and should therefore benefit the debtors, above all the heavily indebted countries. The new inflation target does not mean a delay in tightening monetary policy, stressed Lagarde during the press conference: "We are committed to the target of two percent." The ECB will not tolerate any permanent significant deviation from the inflation target.
Climate risks should influence the monetary policy of the ECB in the future
The new strategy should already be applied at the next central bank meeting on July 22nd. However, the new definition of price stability is not the only change. The ECB also wants to take climate risks into account more in its monetary policy in the future. When buying corporate bonds, the central bank had already started to take into account "relevant risks of climate change", said Lagarde.
But that is also controversial, especially since the ECB is specifically buying so-called green Anleihenthat meet certain environmental standards would deviate from the previous principle of market neutrality. The central bank of all things would then run the risk of possibly contributing to distortions in the financial markets.
What is also new is that the cost of living in one's own house or apartment will in future be taken into account when measuring inflation. So far, only rents have been included in the inflation calculation in the euro area, which is why housing costs have only a relatively small share of the calculated inflation. This has repeatedly caused criticism, because housing costs are actually the most important item of expenditure for many households.
In view of the rapidly rising real estate prices, including in Germany and France, many economists fear that the inflation rate is now even reported too low and thus no longer adequately reflects everyday reality. Accordingly, most of the experts were positive about the planned change - at least on this point there was praise for the ECB.
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