ECB Woes

Of Hawks and Protectionists

ARCHIV - Der Neubau der Europäischen Zentralbank (EZB) scheint am 21.10.2014 in Frankfurt am Main (Hessen) die Skyline der Stadt beim Blick aus Offenbach zu überragen. Foto: Frank Rumpenhorst/dpa (zu dpa "Europäische Zentralbank erhöht Strafzins für Bankeinlagen" vom 03.12.2015) +++(c) dpa - Bildfunk+++
Not much cause for optimism? 
  • Why it matters

    Why it matters

    The biggest threat to the ECB and the euro zone is not Mario Draghi’s monetary policy, but in-fighting within the institution, the writer says.

  • Facts

    Facts

    • The ECB’s official inflation goal is at just under 2 percent.
    • A group of hawkish central bankers want to push this target even lower.
    • Falling oil prices and sluggish global growth are creating a deflationary environment in Europe.
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  • Audio

    Audio

  • Pdf

As we enter 2016, Mario Draghi’s prediction that the European Central Bank will achieve its inflation target of just under 2 percent is being met with increasing skepticism — and for good reason.

Euro zone inflation is way below target and judging from the meager stimulus package agreed to by the bank’s governing council at its December meeting, Europe’s central bank does not appear to be in any particular hurry to correct the situation.

That’s playing with fire. The perception of indifference on the part of the central bank to its inflation target increases the danger that under the weight of plunging crude oil prices and fragile global demand, euro zone markets develop a deflationary mindset or bias that turns current sluggish inflation into actual deflation.

New euro zone monetary stimulus is needed precisely to prevent this from happening.

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