The ECB meets to retreat to the hill to discuss key strategy issues

European central bankers meet in Frankfurt on Friday to discuss issues ranging from changing the European Central Bank’s inflation target to manufacturing the greenest monetary policy, in an attempt to recalibrate the formulation of euro area policies for the coming years.

The three-day retreat to the hills overlooking Germany’s financial center – the bank’s first personal board meeting since the start of the pandemic – will test consensus on areas that will form the backbone of a strategy for reviewing the plans of Christine Lagarde, Head of the ECB. to sketch in September.

The meeting is “crucial to reaching the maximum possible consensus on a number of open issues,” said Yannis Stournaras, governor of the Greek central bank and a member of the ECB’s board. “By the end of the summer we will have agreed on a new strategy.”

Another ECB board member said: “We have had virtual seminars on the individual topics of the review, but we have not had the opportunity to talk about it all. I think there are more areas of agreement than disagreement and this it is a great opportunity to explore them ”.

The institution decided to review its strategy again – the first such review since 2003 – shortly after Lagarde took over from Mario Draghi in November 2019. The review will end this fall after some delay due to of the pandemic.

Consensus has been formed among the 25 members of the council, including the 19 national heads of eurozone central banks, behind the idea that the ECB is taking action against climate change, one of the most discussed questions among central bankers, the privileged and analysts.

Jens Weidmann, head of the German central bank and long considered one of the main opponents of the greening of its monetary policy, said for the first time this month that he would support a “decarbonisation” of the purchase of assets. ECB and collateral policy.

“Paradoxically, it seems that there will be a greater consensus on the greening of monetary policy,” said Maria Demertzis, deputy director of the Bruegel think tank in Brussels. “I say paradoxically because initially this was the least expected area.”

Lagarde he said this week who hoped that “climate change will have a place” in the new strategy once completed, and told Politico that this “will be an indication that the ECB is attentive and able to adjust and adapt” .

There is less consensus on the ECB’s inflation target. Most board members agree that the current inflation target is obsolete at “close but below 2%,” which Lagarde said was “confusing for observers and for markets as well,” but there is disagreement about which should replace it.

Some political leaders, such as the ECB’s chief economist Philip Lane and the head of the central bank of Finland Olli Rehn, have told the Financial Times that they see merit in following the change in the US Federal Reserve to a medium-term inflation target. This would mean allowing inflation to exceed the target to recover for a lower period.

Others say they would prefer a simpler 2% target and worry that following in the Fed’s footsteps could complicate the message. A board member wondered “how it would work” in the event of an average inflation targeting.

There is some support for the idea of ​​“tolerance bands” around its inflation target, similar to the Bank of England, which writes an explanatory letter to the UK chancellor when inflation exceeds or falls below its 2% target.

The central bank is also sensitive to the criticism it has heard from the public during its “The ECB listens”Online events, in particular the perception that monetary policy does not sufficiently take into account the rising cost of housing.

“Housing was a key point,” Lagarde said in a Politico interview. “People were also interested in what the ECB can do to help unemployment and what we can do with wages.”

The ECB is likely to push Eurostat to follow other countries including the cost home ownership to their inflation data, although this will be technically difficult and can take years to achieve.

Officials believe that public confidence in the ECB remains too low, at 46%, even if this exceeds 40% last year, according to the latest data. Eurobarometer survey of euro area citizens. “We need to improve our communications, point and end,” a board member said.

To address this, the events of the “listening ECB” could become a permanent feature, said the political leader, who added that his communication should be more “anchored in our understanding of the labor market” by demonstrate that they care about both jobs and bond prices.

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