The ECB has now cautiously started its monetary policy reversal, even if only through words rather than deeds. The change in communication is an important step in the right direction.
Many in Germany consider the ECB’s exit as too slow. Many underestimate the importance of the ECB decision, which signals a sustained monetary policy tightening for the first time in more than ten years. The ECB is right in preparing the exit gradually and not abruptly in order not to damage confidence, so that companies and investors can plan for the long-term. The ECB will have to pursue a policy of a gradual and cautious exit in order to avoid unnecessary market volatility.
The economic recovery of the euro area is on a promising path. The cautious exit is appropriate as the ECB is still not sufficiently fulfilling its price stability mandate. Especially core inflation, which is stubbornly stuck at below 1%, prevents the ECB from a premature monetary policy exit. Investment and wage growth in the euro area, and also in Germany, are still too weak to ensure a sustainable recovery.