(In the message “Schnabel: ECB must respond to people’s expectations”, which was sent at 4:38 pm, the third sentence of the fifth paragraph must read correctly as follows: “Isabel Schnabel answers this question in the affirmative, at least with regard to the request to the ECB, which to support ‘other economic policy’ of the EU, if this does not impair fulfillment of the primary mandate (NOT: impaired). “A corrected version follows.)
Schnabel: The ECB has to respond to people’s expectations
By Hans Bentzien
FRANKFURT (Dow Jones) – According to ECB Director Isabel Schnabel, the European Central Bank (ECB) must respond to people’s expectations, but at the same time fulfill its price stability mandate. At a workshop at the Forum New Economy, Schnabel pointed out that societies’ expectations of central banks have often changed, and that for many people today, the central bank’s commitment to climate protection or against financial inequality is at least as important as it is to price stability.
“The challenges that central banks are facing today are fundamentally different from those that were relevant when they achieved extensive political independence,” said Schnabel. Inflation is less of a concern for many people today, in large part due to the success of central banks in combating it.
Many people expect the ECB to work for climate protection
“Many are calling for the central banks to play a more active role in coping with broader societal challenges, particularly climate change,” said Schnabel. Such shifts coincided with widespread suspicion of the far-reaching and complex monetary policy measures that central banks have taken in recent years to protect the economy from a dangerous spiral of falling prices and wages.
On the one hand, according to Schnabel, the ECB must fight deflation risks and it must do so as resolutely as Fed Chairman Paul Volcker did with inflation in the late 1970s and early 1980s. You must seek understanding for these measures and always keep an eye on their side effects.
On the other hand, the ECB must quasi “earn” its independence from political influence by addressing public concerns and carefully examining whether and how it can respond to these concerns within the scope of its mandate. Can she do it with environmental protection? Isabel Schnabel answers this question in the affirmative, at least with a view to the demand on the ECB to support the “other economic policy” of the EU if this does not impair the fulfillment of the primary mandate.
The direct relevance of climate change for price stability is still unclear
Can it also do so by fulfilling its primary mandate – is climate change a risk to price stability itself? Schnabel’s answer is more cautious here. “The extent of the risks to price stability from climate change is the subject of intense and growing debate, and the question is far from clear,” she said.
According to Schnabel, critics argue that the risks of climate change for price stability are far in the future and that it would be extremely unusual for a central bank to take preventive measures against future shocks. Proponents, on the other hand, argued that global warming will cause unusually large and sometimes irreversible changes in economies. ”
It is forecast that global emissions will not decrease in the next 40 years, even if all currently planned climate policy measures are implemented, “said Schnabel.
The Governing Council is currently discussing this as part of its strategy review. The results of the discussion are to be announced in autumn.
In addition to Isabel Schnabel, the ECB President is one of the supporters of the ECB’s commitment to climate policy Christine Lagarde. Chief economist Philip Lane can also be counted among the “green” monetary politicians. On the other hand, the German ECB Council member tends to be critical Jens Weidmann.
Contact the author: email@example.com
DJG / hab / smh / sha
(END) Dow Jones Newswires
May 27, 2021 11:09 ET (15:09 GMT)