“Give” the energy to her short legs! Why does one of the “hawks” warn the European Central Bank

Governments’ efforts-like Greek-To mitigate the risks of the energy crisis forcing the European Central Bank to raise interest rates more aggressively while battling record inflation. This opinion has been expressed byBoard Member, Pierre Winch.

He said it already “makes sense” for the ECB to raise borrowing costs to 3% from 0.75% now to tame interest rates. The President of the Belgian Central Bank in an interview in Washington. He said the “subsidy war”, in which countries provide aid to energy-intensive companies, would intensify the pressure.

“The biggest concern is that we have monetary policy trying to control inflation, and fiscal policy is doing more and more to support people,” Winch said. One of the “hawks” of the European Central Bank. “There is a real risk of policy mismatch, and as a result there will be higher interest rates – because we have to do our job – as well as higher deficits.”

The comments underscore the challenges of coordinating monetary and fiscal policy with declining economic growth and rising inflation. The issue was front and center as global policymakers gathered at one of the International Monetary Fund’s annual meetings, as turmoil in the UK demonstrated what can happen when the policies of governments and central banks come into conflict.

The “family basket” is under threat

Although the situation in the 19-nation eurozone is not too tense, European Central Bank officials have been urging for months that support measures for households and businesses should be targeted to avoid rising inflation Which – at 10% – is already five times the official target.

Governments are still allocating hundreds of billions of euros for gas price caps and other initiatives, while some are calling for pan-European instruments to support such measures and avert economic collapse.

Technical stagnation – usually defined as two consecutive quarters of production contraction – is now the “base case” in Europe, Wunsch said, although this alone will not be enough to “control inflation”.

“The market now expects us to raise interest rates to 3%,” he said. We should consider it a possibility.”

With borrowing costs rising, policy makers should not panic if “some pockets of weakness” appear in the markets. Not every such episode justifies the launch of a new anti-fragmentation tool in the enterprise.

“We have to tolerate some crises because you won’t prevent everything until you see where the markets are going,” Winch said.

Liquidation of the 5 trillion euros held by the European Central Bank in the form of government bonds

At the same time, officials should move to liquidate the 5 trillion euros ($4.9 trillion) the European Central Bank holds in government bonds – which have accumulated during recent crises, including the pandemic. Something that obviously belongs to our country too!!

“With inflation at 10%, there’s no reason to keep a big balance sheet,” Winch said. “We have to start as quickly as possible and at a relatively low volume so that we can test the carrying capacity of the market and then increase the volume because we feel comfortable with the fact that the markets can absorb the decline.”

He said removing stimulus is more important because traditional assumptions that inflation will eventually return to the 2 per cent target may not hold any longer.

Salary increase

Wage growth of 5% is likely to become the “new normal” for a few years as workers try to make up for some of the losses they incurred last year — one of several trends not reflected in models used to estimate future price increases.

This means that the ECB’s first forecast for 2025 due out in December – a key input to policy decisions in normal times – will have an information value “close to zero”.

What is more certain is that the appreciation of the US currency will exacerbate inflation expectations.

“The stronger the dollar, the more pressure we have,” Winch said. “Our monetary policy, whether we like it or not, is affected by what is happening in the United States.”