Extreme weather events are growing in size, power and frequency, meaning our economies are increasingly disrupted. We show how this results in climateflation, which poses a dilemma to the ECB’s policymaking. In a world plagued by supply shocks induced by climate change, conventional monetary policy faces complicated trade-offs in terms of economic activity and prices, while at the same time proving incapable of tackling the source of inflation.
The ECB increases rates by another 0.5 percentage points despite its’ forecasts being wrong. This decision is unprecedented and will have serious socioeconomic consequences.
The ECB can reconcile its price stability mandate with the EU’s environmental and economic objectives by offering differentiated lower rates for particular types of investments such as energy efficiency and renewables.
Key activities and moments from the last 12 month
2022 has shown how important it is to live in homes that can protect us from the reckless actions of petrostates, and from skyrocketing fossil energy prices. For many families, it will be hard, if not impossible, to enjoy the Christmas period in healthy and comfortable homes. EU institutions, including the European Central Bank (ECB), can make sure that this will be the last Christmas of this kind.
The ECB is expected to pay around €40 billion in net interest income to banks on the overnight deposits that they keep with the central bank. This estimated figure will jump to €53.7 billion if the ECB decides to increase the interest rate on its deposit facility (DF) from the current 1.5% to 2% on December 15. France and Germany expected to profit the most in absolute terms. We provide the implications of these purely accounting-induced profits for the wider banking system and the real economy.
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