The members of the Council of the European Central Bank have agreed to inaugurate a new stage in the history of European monetary policy and have decided to replace the inflation target set in the statutes of the entity since 2003, which was until now « below but close to 2% ”, for a higher one, which mentions 2% and even contemplates rates above that line. Framing this revolution in the fight against the economic consequences of the pandemic, the ECB already considers good price increases higher than those that the euro zone has enjoyed since the beginning of the 21st century.
The decision will be officially announced after the meeting that the Council holds today in Frankfurt, but the deal has already been pre-cooked, according to the Blommberg news agency. The new goal of inflation is 2% flexible, which may be exceeded when the Board deems it necessary without therefore raising interest rates or withdrawing existing stimuli. The ECB, with this full-blown reform with which Christine Lagarde remakes the strategy, ceases to assume the role it inherited from the German Bundesbank, in whose image and likeness it was designed, as a watchdog and protector against inflation. Now the ECB is more like the US Federal Reserve, which already last August announced a relaxation of its objective after 41 years of uninterrupted continuity in its monetary policy. Since then, prices have risen 5% in the United States without the Fed lifting a finger to prevent it.
In the already rather stale terms of
pigeons and hawksThis is a defeat for the latter and gives greater flexibility and permissiveness for the ECB to continue using anti-crisis artillery without fear of its consequences. The first and most directly affected by the decision is the PEEP debt purchase program, with a total allocation of 1.85 trillion euros, in principle in force until March 2022, which could be prolonged. Apparently, in addition, the decision benefits the most indebted countries of the euro zone, among which is Spain, since a greater tolerance to inflation would help to dilute the value of the public debt already assumed, but it also paves the way for the debt to continue increasing, which in the most optimist will leave the balance in what is eaten for what is served. Taking into account that the Spanish public debt is already above the 125% of GDP, the new policy paves the way for the issuance of more debt and to continue transferring the weight of the current crisis to the following generations, benefiting the continuity of governments that can continue issuing bonds without assuming debt reduction policies.
Lagarde thus fulfills one of the main objectives set upon his arrival as president of the ECB. “We are going to review a multitude of issues, including how we meet our objectives, how we measure and what tools we have, as well as how we communicate,” he announced from the beginning. Lagarde has maintained its roadmap with determination, despite the fact that the main concern of the euro zone right now is not high inflation, but low inflation, especially in certain geographical areas. At the time of strategy reform, European inflation is at 1.9%Although few experts doubt that in the coming months we will see significant advances in the data, flattened by the pandemic and by the need for companies to throw prices on the ground in search of customers.