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The ECB’s ‘High-Class Problem’

Emons, Ben, (2017), «The ECB’s ‘High-Class Problem'», BloombergView, 7 Μαρτίου

The European Central Bank has been in a difficult position when it comes to addressing inflation with conventional policy. The main reason is that, during the debt crisis, the bank faced a trade-off between stabilizing European sovereign bonds, consumer inflation and lending. Financial stress from sovereign bonds spilled over into the real economy and left the ECB with residual deflation, high unemployment and a rising tide of populism. Now euro-zone inflation that has risen to 2 percent, increasing populism and an improving economy may lead to a potential rate hike sooner than the bank wants.

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