The President of the European Central Bank Christine Lagarde is preparing to launch a sweeping review of the bank’s strategy for the first time since 2003 to address divisive issues that range from negative rates in central banking to climate change.
Lagarde’s initiative would be the second strategic review in the ECB’s 20-year history. The audit will be carried out through a sequence of debates over its monetary policy strategy.
The review will cover a period that includes the 2008 Global Financial Crisis and the Eurozone’s debt crisis, two seminal events that forced the ECB to embrace of unconventional, and largely unpopular, monetary policies — including cutting the deposit rate into negative territory and purchasing more than €2.6 trillion of bonds.
The planned review will be formally discussed by the ECB’s governing council and, most likely, will not be approved before the end of the year.
Talking to the European Parliament, Lagarde said that the review will ‘‘be guided by two principles – thorough analysis and an open mind’’, adding, ‘‘every stone will have to be turned and every option will have to be examined’’.
According to officials involved in the preparation of the review, the latter is likely to require more research into the causes of below the 2% that ECB has recorded despite the vast amounts of cheap money injected into the economy. The scope would also test whether this is a short-term cyclical phenomenon or the result of more long-term structural factors such as digitisation, globalisation, or demographics.
The review is primarily expected to define the ECB’s main mandate of achieving price stability by rethinking the inflation target, while it might as well focus on the negative side-effects of the central bank’s policies and reconsider their use.
On a secondary level, the review will also take into consideration climate change, cryptocurrencies, and inequality, problems Lagarde believes the central bank should explore effective ways to participate, though they are not part of the ECB’s primary mandate.