The President of the European Central Bank (ECB), Christine Lagarde, gave some further indications on the timing and outlines of the strategic review of monetary policy on Thursday 12 December, at the end of the first official meeting of the Governing Council that she led.
"We’ll turn each and every stone" and we have, "no preconceived landing zone at this point in time", she said. This "exhaustive" review, which will take place 16 years after the last edition, will begin "in January" and will be completed "before the end of 2020".
The major issues of our time, such as the advent of the digital age, the "immense" challenge posed by climate change, as well as "the aspects of inequality that are certainly rising in our economies", will be addressed and we will see how these issues must be taken into account within the framework of our mandate, said Ms Lagarde (see EUROPE 12381/14).
In this review, the ECB will consult both the usual observers of the monetary institute's policy, the European Parliament, academia and civil society.
On taking climate change into account, Mrs Lagarde welcomed the presentation of the European Green Deal (see EUROPE 12388/1), by the European Commission, the day before. "We will see how we can participate in this adventure", she said.
Reorienting securities repurchases on secondary markets towards financial assets that are labelled "sustainable" is undoubtedly one of the ECB's areas of work. In this respect, Mrs Lagarde showed some disappointment after Member States refused, on Wednesday, to endorse the provisional interinstitutional compromise on taxonomy in sustainable finance, agreed between the Finnish Presidency of the Council of the EU and representatives of the European Parliament (see EUROPE 12388/16).
This taxonomy "would be extremely useful for us", she said.
Monetary policy unchanged. On Thursday, the Governing Council decided to continue the very accommodative monetary policy (steering interest rate expectations, negative rates, quantitative easing) aimed at combating persistently low inflation and, indirectly, at combating the slowdown in economic growth in the euro area for "as long as necessary".
But this time, however, the ECB is seeing "some initial signs of stabilisation" in the growth slowdown, and of a mild increase in underlying inflation.
Decided in September despite strong internal controversies within the European institution (see EUROPE 12326/1), the quantitative easing operation for the massive repurchase of public and private financial securities was reactivated at the beginning of November for €20 billion per month.
The monetary institute also unveiled new growth forecasts, anticipating the following path for wealth creation in the euro area: +1.2% of GDP in 2019, +1.1% in 2020, +1.5% in 2021 and 2022. This forecast has been revised slightly downwards for 2020.
New inflation forecasts were also released. They expect a slight increase for 2020, as well as a slight decrease for 2021, due to less pressure from energy prices on price increases: 1.2% in 2019, 1.1% in 2020, 1.4% in 2021 and 1.6% in 2022.
Ms Lagarde rejected the idea of a 'Japanification' of the economic situation, arguing that growth, although "weak", was gradually returning to its potential. She called for the mobilisation of national governments to stimulate the euro area economy through fiscal policy and the pursuit of structural reforms.
EMU. Advocating further work on the deepening of the Economic and Monetary Union (EMU), the ECB President said that the reform of the European Stability Mechanism, the euro area rescue fund, was intended to increase financial stability.
In particular, she claimed that the use of Collective Action Clauses (CACs) in sovereign debt issuance contracts was not directed against a particular country, such as Italy (see EUROPE 12384/1). The purpose of these clauses, in the event of an extraordinary restructuring of the public debt of a country in difficulty, is to prevent the "very toxic" behaviour of creditors (such as vulture funds, editor's note), she argued. And she welcomed Italy's recent opening regarding the diversification of sovereign debt securities held by banks. This question is one of the challenges in relaunching negotiations on the completion of banking union in the euro area. (Original version in French by Mathieu Bion)