At its meeting scheduled for Thursday 16 December, the Governing Council of the European Central Bank (ECB) will assess the health situation arising from the Covid-19 pandemic and, on this basis, will take a decision on its monetary policy, and in particular on the development of the pandemic emergency purchase programme (PEPP), ECB President Christine Lagarde said on Monday 15 November.
Launched in spring 2020 to ensure favourable financing conditions at the height of the pandemic (see EUROPE 12450/6), the PEPP is expected to end in March 2022, or at least when the Governing Council has declared the end of the pandemic crisis phase.
In mid-December, “we'll have a fresh set of numbers, we'll look at the health & sanitary situation to assess whether the pandemic crisis phase is indeed over or not”, said Ms Lagarde. We will calibrate our purchases according to our analysis, she added, warning that even if the pandemic crisis is resolved, monetary policy will have to remain “persistent” in order to anchor the recovery and put inflation on a path consistent with the EU institution’s mission.
Ms Lagarde reiterated the ECB’s analysis presented at the end of October: the recovery is strong, albeit somewhat weaker since the end of the summer, with the euro area economy expected to return to its pre-crisis level by the end of 2021, less than 2 years after the outbreak of the pandemic and 7 years after the sovereign debt crisis. The risks to the economy are balanced, with health developments posing a downside risk (see EUROPE 12822/18). Inflation, currently driven by rising energy prices and supply problems, will peak and then gradually recede during 2022. But, at this stage, rising prices do not have a direct impact on wages, although they are expected to grow further in 2022, according to the Frankfurt Institute.
Under these conditions, it is “very unlikely” that the ECB will raise its key interest rates in 2022, the former IMF director repeated (see EUROPE 12825/18).
On the right of the political spectrum, Markus Ferber (EPP, Germany), Gerolf Annemans (ID, Belgium) and Michiel Hoogeveen (ECR, Netherlands) said they were concerned respectively about the impact of inflation on citizens’ savings in Germany, rising wages in Belgium and property prices in the Netherlands.
Understanding the concerns about inflation “increasing the cost of living and reducing purchasing power”, Ms Lagarde recalled the significant differences in the strength of the recovery across the euro area, with Spain not expected to return to its pre-crisis level of wealth production until 2023. Tightening current monetary policy would do “more harm than good”, she said.
On the left of the political spectrum, Pedro Silva Pereira (S&D, Portugal, Ernest Urtasun (Greens/EFA, Spain) and Chris MacManus (The Left, Ireland) welcomed the fact that the ECB was prepared not to repeat the mistakes of spring 2011 by raising interest rates too early and then having to lower them again.
Finally, Mrs Lagarde spoke about how residential property prices will gradually be taken into account in the quarterly calculation of inflation, with a target date of 2026. Until then, legislative work will be needed, she noted, hoping for the European Parliament’s support on this point. (Original version in French by Mathieu Bion)