- The ECB published an ambitious plan which sets out the roadmap for climate-related actions for the next years; crucial importance should now be placed on speed of implementation
- No surprise on the inflation target as symmetry is merely made more explicit; after having undershot its target for the last 10 years, it remains unclear how the ECB wants to reach it without tools such as helicopter money
- Welcome the establishment of a periodic strategy review as soon as 2025; meanwhile the ECB should deepen engagement with civil society and European Parliament.
Brussels, 8 July 2021, 15:00
The outcomes of the ECB’s strategic review show how much progress was made on civil society demands such as climate action and the inclusion of housing prices in inflation data. However, the ECB failed to depart from the status quo in terms of its core monetary policy tasks. Nonetheless, the ECB’s commitment to carry out periodic reviews, as soon as in 2025) are good foundations for working towards a more effective and fair monetary policy.
In a surprisingly early announcement, the ECB has revealed today the results of its strategic review, an 18 months-long process that started in January 2020. The main decisions entail: (1) a symmetric inflation target of 2%, (2) inclusion of owner-occupied housing in the inflation index, (3) a climate change action plan.
On climate change, Positive Money Europe’s Uuree Batsaikhan says:
“During the last 18 months, the ECB has undergone a paradigm shift, moving away from ideological adherence to market neutrality to admitting the necessity to shift their portfolio from high to low-carbon companies, in line with EU climate goals. Climate can’t wait and the ECB should do more in the future, but today the direction was made unambiguously clear.”
On the inclusion of housing prices in the HICP, Stan Jourdan argues that
“We welcome the inclusion of housing prices in the inflation index, an issue championed by Positive Money Europe and echoed by many citizens across Europe for years. It is a relief that the ECB will finally remove its blindfold on the erosion of housing affordability”
On the revised inflation target, Marc Beckmann points out:
“Beyond the hype, the ECB’s now explicit commitment to symmetry on its inflation target does not represent a significant departure from the status quo. After having failed at delivering on its inflation target for the past 10 years, we remain unconvinced as to why the ECB would do better without equipping itself with new instruments such as helicopter money. Christine Lagarde has not yet fulfilled her promise to “leave no stone unturned”, as new tools such as helicopter money were not seriously considered yet.”
Already in June 2019, Positive Money Europe had called on the ECB to review its strategy, as the last edition of this review was done 17 years ago in 2003. Together with its partners in academia and civil society, Positive Money Europe has campaigned intensively for tackling the challenges that have emerged since then: the carbon bias in the monetary policy operations, the inequality-exacerbating effect of the QE programme and the lack of fire-power to support a people-centered economic recovery.
With the results of the review, some of these efforts have come to fruition. However, we will continue to scrutinize the ECB, particularly the execution of the ECB’s climate roadmap, hoping the ECB will adopt the same speed with the implementation of the climate change action plan than with the final stages of the strategic review.
Importantly, the ECB should go beyond a risk-based approach and consider already excluding the dirtiest of assets from its purchase programmes. Furthermore, the ECB should be more ambitious in the choice of instruments, e.g, considering also the greening of its targeted long-term refinancing operations.
The next months will also show the extent to which the ECB is able to deliver on its new inflation target. The ECB should think harder about how it will deliver on the minimal revision of its inflation target without a comprehensive toolkit that includes helicopter money.
Finally, we expect the ECB to keep improving its engagement with civil society, e.g. by having regular and institutionalised meetings with civil society representatives. The involvement of civil society organisations in the implementation of the climate change roadmap as well as the process leading up to the next review in 2025 would confirm that ECB President Lagarde continues to value input from the public.