The combination of higher inflation and the still too slow green transition creates a dilemma for the European Central Bank because taming down inflation using its traditional interest rate policy would effectively make green energy investments costlier. To avoid such counter-productive outcomes, the ECB needs to signal clearly that any effort to fight inflation will also maintain favorable funding conditions for spending or investments that contribute to a successful energy transition.
Amidst soaring inflation, central bankers should avoid panicking prematurely and compare the current situation to that of stagflation as seen in the 1960s and 1970s. Even persistent inflation has causes other than monetary policy, Economist and historian Eric Monnet reminds us.
In its new strategy, the ECB decided that housing costs should be better reflected in the inflation index. However, this won’t address citizens’ concerns. If there is anything the ECB can do about the rise in housing costs, it is to change the way it conducts its monetary policy.
A new study finds that ECB’s monetary policy affects the wage share of companies and thereby the distribution of income between workers and shareholders. Given that these effects differ by firm characteristics, monetary policy has uneven effects across the euro area. To tackle this, more targeted monetary policy tools should be developed.
After Covid19, huge numbers of households and companies are expected to have loan payment difficulties, aggravating the socially disastrous effects of the crisis and putting a serious strain on the recovery. The EU’s plans to tackle this problem are flawed and misled by the neoliberal belief that markets and financial engineering can fix this deep socio-economic problem.
While EU Treaties clearly stipulate that the European Central Bank “shall support the general objectives of the European Union”, politicians cannot simply stand by, hoping that it will use its discretionary power to act on them, write a group of EU experts led by Positive Money Europe.