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The ECB has a new strategy

The ECB shifts strategy to avoid premature rate rises”, July 9, 2021, what a new! The first new ECB strategy “for nearly two decades” the ECB will tolerate a “slight overshoot”. So, from now on, the ECB will tolerate a positive deviation from its two per cent target. The ECB will use “forceful or persistent monetary policy action”, all said with strong determination to show the world our total determination; but this is exactly what has been done since 2015, the ECB has launched a strong quantitative easing to buy government bonds.


Instead of showing its muscles to say banalities, the ECB would rather think how to start to taper without tantrums a growing and no more useful instrument when inflation starts up again. Certainly, QE has plaid a very useful role in providing liquidity to financial institutions during a financial crisis or financing fiscal deficits during a global recession, but now time has come to think about acting to taper. The role of a central bank does not consist of financing fiscal deficit ad nauseam, financing green bonds, or reducing inequality. As normality returns, the role of a central bank (including ECB) should be to think how to reduce their balance sheets without major disruptions. As usual, the ECB is fighting a past war.


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Prof Rodrik response

Thank you for sending us your critique. We appreciate your candid views. But I must say that I disagree with your premise. The approach we take is indeed fully consistent with the diagnostic method pr