January 24, 2020
The ECB has launched its strategic review. It will focus on the ECB's primary mandate of price stability, including its quantitative interpretation, the instruments available to the ECB to meet it, economic and monetary analyses, and communication. Of secondary importance, but still part of the review, will be financial stability, employment, and environmental sustainability. Topics that we might have expected to see singled out, but were not, include the international role of the euro and digital currencies. Still, digitalisation and globalisation are mentioned as part of the features of the monetary policy environment that have changed since the ECB undertook its last strategy review in 2003.
The starting point will be an assessment of the past 20 years of policy, with a focus on how the first decade was spent taming high inflation while the second was spent trying to raise low inflation. The ECB says the current review would be open-minded and thorough.
At her press conference Christine Lagarde compared the inclusion of stakeholders within the ECB's strategy review to the US Federal Reserve's Fed Listens events. She pointed out that, as the central bank of nineteen different countries, the ECB will need to engage the public in their own languages. The national central banks will play a key role in this exercise. One question that keeps cropping up is why a strategic review is necessary, with the implication that the public may not understand this diversion of ECB resources. At Lagarde's press conference journalists argued what citizens care about is when interest rates will rise again, as they affect them as savers and borrowers; or how inflation differs from their own experience of prices, with an emphasis on housing prices.
The review is intended to last until the end of the year. Lagarde implied a conclusion of the review in November and communication of the results in December, but she also said the review will be ready when it's ready. In the meantime, she reassured that monetary policy will not be on autopilot until then. The ECB will act if necessary.
Lagarde refused to be drawn into discussions about the inflation target. This was good judgement in our view. She said her role as ECB president would be one of coordination and giving her personal view could pre-judge the review. But she did talk at length about how she views climate change and sustainability considerations as affecting ECB policy. Sustainability will be part of the review. The strategic review itself will look at whether and how the ECB's corporate bond purchases can be aligned with the environmental sustainability goals, in keeping with the bank's mandate.
We also have stories on the ECB’s cautious optimism; on the next round of the French pension debate; on the stages of mourning in the German car industry; on Turkey’s provocations; on German anti-semitism; and on how the Greek crisis influenced Brexit views.