The European Central Bank meets in a hillside retreat to discuss key strategic questions

European central bankers meet in Frankfurt on Friday to discuss issues ranging from changing the European Central Bank’s inflation target to… Making Monetary policy is greener, in an attempt to re-calibrate policy making in the eurozone for the coming years.

The three-day retreat into the hills overlooking Germany’s financial hub – the bank’s first in-person meeting of the bank’s board since the pandemic began – will test consensus on areas that will form the backbone of European Central Bank President Christine Lagarde’s strategic review of plans to summarize in September.

The meeting is “crucial to achieving the maximum possible consensus on a number of open issues,” said Yanis Stournaras, Greek central bank governor and European Central Bank council member. “By the end of the summer we will have agreed on a new strategy.”

Another member of the ECB Council said: “We had virtual seminars on individual topics of review, but we did not have the opportunity to talk about everything together. I think there are more areas of agreement than disagreement and this is a great opportunity to explore them.”

The foundation decided to reconsider its strategy – the first such review since 2003 – shortly after Lagarde took over from Mario Draghi in November 2019. The review is due to end this fall after some delay due to the pandemic.

A consensus was growing among the Council’s 25 members – including the heads of the eurozone’s 19 national central banks – behind the idea of ​​the European Central Bank taking action against Climate change, one of the most controversial questions among central bankers, insiders and analysts.

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

Jens Weidmann, Bundesbank president who has long been seen as one of the main opponents of a greening of its monetary policy, said for the first time this month that he would support “decarbonization” of asset purchases and the ECB’s guarantees policy.

“Ironically, it appears that the biggest consensus will be on greening monetary policy,” said Maria Demirtzis, deputy director of the Bruegel think tank in Brussels. “I say paradoxically because this was the area least expected at first.”

Lagarde He said this week That she had hoped climate change would have a place in the new strategy once it was completed, she told Politico that this “would be an indication of the fact that the ECB is attentive and able to adapt and adapt”.

There is less consensus on the ECB’s inflation target. Most board members agree that the current inflation target is outdated at “close to but below 2 per cent” – which Lagarde said is “confusing to observers as well as markets” – but there is disagreement over what should replace it.

Some policy makers, such as the chief economist of the European Central Bank Philip Lane The President of the Finnish Central Bank Oli Ring, they told the Financial Times they see an advantage in pursuing the US Federal Reserve’s shift to the average inflation target. This means allowing inflation to exceed the target to make up for a period under it.

Others say they prefer a simpler 2 percent target and worry that following in the Fed’s footsteps could complicate the message. One council member asked “how it would work” in the case of targeting moderate inflation.

European Central Bank President Christine Lagarde

European Central Bank President Christine Lagarde plans to outline the strategy review in September © Olivier Matthys/Reuters

There is some support for the idea of ​​”tolerance bands” around an inflation target, similar to the Bank of England, which writes a cover letter to Britain’s chancellor when inflation rises more than one percentage point above or below its 2 per cent target.

The central bank is also sensitive to the criticism it has heard from the public duringThe European Central Bank is listeningOnline events, particularly the perception that monetary policy does not adequately take into account the rising cost of housing.

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

The European Central Bank is likely to pay Eurostat to follow other countries by including a cost Ownership In their inflation data – although this would be technically difficult and could take years to achieve.

Officials believe that public confidence in the European Central Bank is still very low at 46 percent – even if it was above 40 percent last year, according to another Eurobarometer Survey of Eurozone Citizens. “We need to improve our communications, full stop,” said one council member.

To address this, “ECB listening” events could become a permanent feature, the policymaker said, adding that its contacts would have to be “much more grounded in our understanding of the labor market” to show it cares as much about jobs as it does bond prices.

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

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