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The ECB meets at the foot of the mountain to discuss questions about strategic strategies

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European central banks meet in Frankfurt on Friday to discuss issues from European Central Bank’s inflation target doing a greener monetary policy, trying to recalibrate eurozone policies for the coming years.

The three-day retreat will test the consensus on the hills facing the German financial center – the first meeting of the bank’s governing board since the pandemic began – in areas that will form the backbone of the strategy review, ECB chief Christine Lagarde has drawn up plans. to be determined in September.

The meeting “is key to reaching the widest possible consensus on a number of open issues,” said Yannis Stournaras, governor of Greece’s central bank and member of the ECB’s board. “We will agree on a new strategy by the end of the summer.”

Another ECB adviser said: “We have held virtual seminars on review issues, but we have not had the opportunity to talk about them all together. I think there is more than disagreement over areas of consensus and that is a great opportunity to look at that.”

The organization decided to re-examine its strategy (the first review since 2003), shortly after Lagard replaced Mario Draghi in November 2019. The review will end in the fall after several delays due to the pandemic.

The idea of ​​taking action against the ECB has led to a consensus among 25 councilors, including the heads of the eurozone’s 19 national central banks. climate change, one of the most debated among central bankers, insiders and analysts.

Greek Central Bank Governor Yannis Stournaras says finance chiefs will agree on new strategy for late summer © Herbert Neubauer / AFP / Getty Images

Jens Weidmann, the head of Germany’s central bank and a longtime opponent of greening its monetary policy, said for the first time this month that he would accept the “decarbonisation” of ECB asset purchases and collateral policy.

“Paradoxically, there seems to be a greater consensus on the greening of monetary policy,” said Maria Demertzis, deputy director of the Bruegel think tank in Brussels. “I say paradoxical because it was the least expected area at first.”

Lagarde he said this week once he concluded that he hoped “climate change will have a space” in the new strategy, he told Politico that this will be “an indicator that the ECB is vigilant and able to adapt and adapt”.

There is less consensus on the ECB’s inflation target. Most council members agree that the current inflation target is outdated “close to 2 per cent, but below” – Lagarde believes it is “confusing for observers and markets as well”, but there is disagreement over what should replace it.

Some politicians, such as the ECB’s chief economist Philip Lane and the central bank of Finland Olli RehnThey told the Financial Times that they see merit in the US Federal Reserve going to an average inflation target. This would mean that inflation will exceed the target to complete the lower period of it.

Others say they prefer a simpler 2 percent target and are concerned that following in the Fed’s footsteps could complicate the message. One board member asked “how it would work” if it focused on average inflation.

Christine Lagarde Head of the ECB

ECB chief Christine Lagarde plans to review strategy in September © Olivier Matthys / Reuters

There is a commitment to the idea of ​​“tolerance bands” around the inflation target, similar to the Bank of England, which writes an explanatory letter to the UK chancellor when inflation is above or below the 2 per cent target.

The central bank is also sensitive to criticism from citizens. “The ECB listens”The perception that online events, especially money policies, do not have a sufficient increase in the cost of housing.

“Housing was a key point,” Lagard said in an interview with Politico. “People were interested in what the ECB could do to help the unemployed and what we could do with wages.”

It is likely that the ECB will encourage Eurostat to follow other countries, including in terms of cost housing occupied by the owner in inflation data – this will be technically difficult and may take years to achieve.

Officials believe that public confidence in the ECB is too low at 46 per cent, up from 40 per cent last year, according to the latest Eurobarometer survey of eurozone citizens. “We need to improve communications, the whole point,” one councilor said.

To address this, the events “heard by the ECB” could become a permanent feature, the political official said, adding that his communications should be “more anchored in understanding the labor market” to show that jobs care as much as bond prices.

The governing council has not met in person since March 2020. Its members will return to Frankfurt in late July to hold their first monetary policy meeting in 16 months.

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