The ECB has reached a historic turning point and will now end its QE program. So far, the ECB has been very successful in engineering the monetary policy reversal without triggering financial market volatility. This week’s decision by the European Court of Justice (ECJ) in favor of the ECB and against German euro critics is an important confirmation for the ECB’s course.
Monetary policy in the euro area will remain expansionary for a long time to come. The ECB has signaled that it will try to avoid a conflict over the capital key and conduct its reinvestments in a fairly mechanical manner.
The ECB has changed its projections and is now admitting that downward risks have increased substantially. I am concerned that the ECB is still too optimistic about its ability to fulfill its price stability mandate in the medium term. The ECB has signaled that the first interest rate rise is unlikely to occur before 2020. I expect a new credit program will be introduced next summer in order to support the liquidity provision to banks.