ASSESSMENTS

The ECB's Strategy Review Isn't Set to Rock the Boat

undefined and Stratfor Senior Analyst for Global Economics at RANE
Michael Monderer
Stratfor Senior Analyst for Global Economics at RANE, Stratfor

Feb 3, 2020 | 10:30 GMT

The historic facade of Frankfurt's Grossmarkthalle, now part of the building of the European Central Bank (ECB), is illuminated on March 16, 2018.

The historic facade of Frankfurt's Grossmarkthalle, now part of the building of the European Central Bank (ECB), is illuminated on March 16, 2018. As the ECB reviews its strategy, caution will be the watchword.

(FABIAN SOMMER/picture alliance via Getty Images)

Highlights

  • The European Central Bank's strategy review will steer clear of producing major changes that affect its monetary tools, delivering instead mainly technical tweaks to its inflation measure and perhaps a few operational changes.
  • The most consequential change will be to include concerns over climate change and inequality into definitions of financial stability.
  • Otherwise, the ECB and other major central banks will continue to struggle with the ineffectiveness of their monetary policies in the current environment, meaning they may not have the adequate tools to respond to downturns.

It's unclear what the European Central Bank wants to accomplish in the nearly yearlong strategy review it announced on Jan. 23, but the last thing a central bank wants is to be considered irrelevant. So, even though years of monetary stimulus have failed to push up eurozone inflation or growth, the ECB isn't about to admit it's out of policy ammunition; instead, it's set to make a big show about tweaking its de facto inflation target and pave the way for President Christine Lagarde to introduce environmental concerns into future assessments of financial stability and the ECB's remit. Given that the ECB has not reviewed its strategy since 2003, a new appraisal of its economic model raises hopes of possible major changes to the central bank's approach and instruments. No one, however, should expect significant changes in the bank's monetary operations this year or next given its existing accommodative policies,...

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