Until 2008, the European Central Bank has always taken pride for having kept inflation stable. However, since the beginning of the financial crisis, the ECB has been incapable of achieving its mandate. For the past six years, inflation was constantly far below the ECB’s target of 2%.
Central bankers are confident that it’s a temporary phenomenon that will be gone soon. But what if more powerful forces are at play? There is an intense debate among experts and academics as to whether technology, globalisation, inequality and demographics are making the current low-inflation phenomenon permanent. If those hypotheses are true, this would mean central banks need to radically rethink their models.
As one of the biggest central banks in the world, the ECB cannot afford to overlook its understanding of the economy and should prepare for all eventualities.
Positive Money Europe argues that the ECB should start a review of its monetary policy strategy, in order to reassess its analysis of the of the economy and to check whether it is using the right tools to achieve its mission. Earlier last year, both the Bank of Canada and the US Federal Reserve have initiated such a review. By contrast, the last time the ECB reviewed its strategy was 16 years ago! Now is the time for the ECB to catch up.
That’s exactly what we asked in an open letter addressed to the President of the European Council Donald Tusk. Sixteen NGOs led by Positive Money Europe demanded that the next President of the ECB carries out a strategic review in the coming years.
However we should not leave this debate to central bankers alone. In our view, this process should involve citizens as much as possible to ensure the public has a say in this debate.