The ECB is right to orientate its policy towards price stability at the mid-term and not to react to short-term price movements. Calls for an early exit of the ECB’s expansive policy are misplaced and premature. The price dynamics of the past two months mainly reflect a normalization of energy prices. The euro area economy remains weak and unemployment rates are too high to allow for a quick return to price stability and for an end to the expansive monetary … [continue reading]Read more
Now that Germany’s current-account surplus has reached a record €270 billion ($285 billion), or close to 8.7% of GDP, the ongoing debate about its economic model has intensified. Eurozone politicians and Donald Trump’s administration in the United States are each blaming the other for the economic imbalance; and all are blaming the euro.
Trump’s administration, for its part, has attacked Germany for exporting too much, and accused it of manipulating the euro. In fact, Germany’s trade surplus has little to … [continue reading]Read more
ECB President Draghi has clearly signaled a continuation of its current course of monetary policy. The rising inflation trend is a positive, welcome development for everyone. Especially Germany should welcome the positive trend in inflation. The sooner the ECB can achieve its price stability objective of 2%, the sooner the ECB can end its expansionary monetary policy stance. … [continue reading]Read more
The ECB decision is wise and balanced. It may disappoint many in Germany. The extension of the PSPP programme was inevitable as the risks to the euro area economy are still huge and the ECB is likely to miss its price stability mandate through 2019.
The ECB decision is wise as it leaves all options open. The ECB is introducing more flexibility through the changes to the PSPP programme. The ECB decision implies a longer period of low interest rates … [continue reading]Read more
The ECB decision bears no major surprises. Draghi did not contradict market expectations of an extension of the QE program to be announced in December. Such an extension has thus become even more likely. I do not expect a reduction in the monthly purchases by the ECB. Such a step would disappoint market expectations and could trigger undesired market reactions. The latest economic news are not encouraging and give little cause for a fundamental change in monetary policy.Read more
The European Central Bank is facing a difficult dilemma. The slower the euro area economy is growing, the lower interest rates and the harder it becomes for the ECB to implement its public sector purchase program. The ECB has assumed a wait-and-see strategy in the hope that its new measures will be effective and the economy will not deteriorate further. Italy’s banking crisis, more than the Brexit, is an enormous risk for the entire euro area, also for Germany, and … [continue reading]Read more
This article was first published on VOXEU.org on June 25, 2016.
Britain voted to leave the EU. This is terrible news for the UK, but it is also bad news for the Eurozone. Brexit opens the door to all sorts of shocks, and dangerous political snowball effects. Now is the time to shore up the Eurozone’s resiliency. The situation is not yet dire, but prompt action is needed. This VoxEU column – which is signed by a wide range of … [continue reading]Read more
An important aspect, that has been widely ignored in the debate about the consequences of a Brexit, is the impact on ECB monetary policy. Lower oil prices and a weaker economy in the euro zone and in Germany are likely to increase deflationary pressures further. As a consequence, the ECB is likely to extend its expansionary monetary policy path further into the future. The Brexit will most likely imply a longer period of zero interest rates for the euro area.… [continue reading]Read more
The German constitutional court took a wise decision, but which is effectively a reversal of its earlier decision of January 2014. The court now accepts the authority and the decision by the European Court of Justice on the ECB’s OMT program of 2015. The backing down of the German constitutional court is a smart move, as it would inevitably have lost the battle against the European Court of Justice on issues of European law. … [continue reading]Read more
The ECB has signaled that low inflation is likely to persist even longer than previously feared. The new projections by the ECB have increased the probability of an extension of QE beyond March 2017. The ECB is putting great hopes into its new liquidity program for banks in order to improve credit to the private sector, strengthen the economy and thereby raise the inflation rate.… [continue reading]Read more