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The ECB meets for hill retreat to discuss key strategic issues

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European central bankers meet in Frankfurt on Friday to discuss issues ranging from changing the European Central Bank’s inflation target to to do greener monetary policy, in an attempt to recalibrate the elaboration of euro area policies for years to come.

The three-day retreat on the hills overlooking the German financial center – the first in-person meeting for the bank’s governing council since the start of the pandemic – will test consensus on areas that will form the backbone backbone of a strategic review of the ECB’s Christine Lagarde plans to be completed in September.

The meeting is “crucial to get the maximum possible consensus on a number of open issues,” said Yannis Stournaras, governor of the Greek central bank and member of the ECB’s board. “By the end of the summer we will have to agree on a new strategy.”

Another ECB board member said: “We have had virtual seminars on the individual topics of the magazine, but we have not had the opportunity to talk about it all together. I think there is more room for agreement than disagreement. and this is a great opportunity to explore them. ”

The institution decided to revisit its strategy – the first review of its kind since 2003 – shortly after Lagarde took over the direction of Mario Draghi in November 2019. The magazine is due to end this fall after some delays due to the pandemic.

Consensus was built between the 25 members of the council – including the 19 heads of the eurozone’s national central bank – on the idea that the ECB would act against climate change, one of the most hotly debated questions among central bankers, insiders and analysts say.

Greek Central Bank Governor Yannis Stournaras has said finance chiefs will agree on a new strategy by the end of the summer © Herbert Neubauer / AFP / Getty Images

Jens Weidmann, head of the German central bank and long seen as one of the main opponents to the green of his monetary policy, said for the first time this month that he would support a “decarbonisation” of acquisitions. the axis of the ECB and the guarantee policy.

“Paradoxically, it seems that the biggest consensus will be on the green of monetary policy,” said Maria Demertzis, deputy director of the think tank Bruegel in Brussels. “I say paradoxically because initially that was the least expected area.”

Lagarde he said this week who hoped that “climate change will have a place” in the new strategy once completed, telling Politico that this “will be an indication of the fact that the ECB is careful and able to adapt and adapt”.

There is less consensus on the ECB’s inflation target. Most council members agree that the current target for inflation is obsolete at “close to, but below, 2 percent” – which Lagarde said was “confusing for observers and even for markets ”- but there is disagreement over what should be replaced.

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Some political decision makers, such as the chief economist of the ECB Philip Lane and the head of the central bank of Finland Olli Rehn, they told the Financial Times that they see the merit in following the US Federal Reserve’s move towards an average inflation target. This will mean that it allows inflation to exceed the target to compensate for a downward period.

Others say they prefer a 2 percent simpler target and worry that following the Fed’s steps could complicate the message. A board member wondered “how it would work” in case of average inflation target.

Christine Lagarde, Head of the ECB

Christine Lagarde, head of the ECB, plans to explain a September strategy review © Olivier Matthys / Reuters

There is some support for the idea of ​​“tolerance bands” around its inflation target, similar to the Bank of England, which writes an explanatory letter to the UK chancellor when inflation goes above 1 percentage point above or below its 2 percent target.

The central bank is also sensitive to the criticism it hears from the public during its “The ECB listens»Online events, in particular the perception that monetary policy does not take sufficient account of the rising cost of housing.

“Housing was a key point,” Lagarde said in the Politico interview. “People were also interested in what the ECB could do to help with unemployment, and what we could do with wages.”

The ECB is likely to push for Eurostat to follow other countries including the cost of accommodation occupied by the owner in their inflation data – although this will be technically difficult and can take years to achieve.

Officials believe that public confidence in the ECB remains too low at 46 per cent – even if it exceeds 40 per cent last year, according to the latest Eurobarometer survey of euro area citizens. “We need to improve our communications, period,” said a board member.

To address this, “ECB listening” events could become a permanent feature, the policy maker said, adding that their communication should be more “anchored in our understanding of the labor market” to show that it cares so much. of employment than of bond prices.

The governing council has not met in person since March 2020. Its members will return to Frankfurt in late July for their first in-person monetary policy meeting in 16 months.


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