Opiniones
22.11.2019, 16:46

ECB interest rates short-term change unlikely, unconventional stimulus could dominate

A new European Central Bank president Christine Lagarde confirmed she would start a strategic review of ECB’s monetary policy to bolster economic growth and bring the euro area inflation closer to a 2% target. She reiterated that ECB’s accommodative policy is a key element in supporting domestic demand that should be addressed by all European nations’ institutions as a major driver for economic development.

Unfinished monetary and policy union in EU, internal ECB’s limits for Quantitive Easing programme requires a new unconventional, more political measures to reshape growth in Europe. Calling for more public investments in euro area Lagarde advocates the government borrowings to be relocated towards economy stimulus. This is the right pressure point where Mrs. Lagarde political experience as former Managing Director of International Monetary Fund and a French finance minister is most valuable.

The exciting point of her speech on Friday is a support extended to complete the single digital market and the capital market union in Europe. The support of European financial integrity displayed by ECB President could help to move on with European banking union that is promoted by Germany. This is in line with ECB’s efforts to clean up banking system in euro area via mergers and acquisitions that may allow exploit economies of scale and scope.

Christine Lagarde at her first speech performed herself an experienced communicator to the markets waving off concerns about her preferences to listen to the trade unions, consumers’ associations, NGOs rather than being well understood by investors. In addition, she presented herself as a wise independent politician that could offer a solution rather to allow pressure on monetary policy.


Unconventional measures

A point to embrace innovation and capitalize on the digital age could highlight the framework of unconventional measures the ECB could perform not only to the banking system in euro zone but to cope with non-bank financial institutions that are playing an increasingly important role in financing the euro area economy, especially through their sizeable investments in bonds issued by euro area non-financial corporations. Those institutions are facing similar challenges to banks with profitability being one of the major concerns too. Another source of concern is the elevated exposure of non-banks to highly indebted segments of the corporate sector. This will require ECB to develop a macroprudential framework for such financial institutions to diminish risks and vulnerabilities.

Further unconventional measures could involve an indirect financing in euro area to support internal demand. Such indirect financing could be introduced via digital currency centralized at the ECB level or euro area central banks level under supervision of European monetary policymaker. This could allow every EU resident to have a digital money account with the central bank and to inject further financial stimulus to Europe’s economy gearing up inflation.


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