The ECB Is Struggling With Three Big Questions
Peter Praet’s comment on tiering interest rates is just one example of where the ECB can’t make its mind up. The others are the outlook and inflation.
Economic outlook. Inflation. Interest rates. The ECB can't make up its mind on any of them.
Photographer: Andreas Arnold/BloombergFor the best part of a decade, politicians and investors have looked at the European Central Bank as a guiding light through uncertain economic times. They may need to adapt to a new reality. On three important questions for the future of the euro zone, the ECB just cannot make its mind up.
The first dilemma is the outlook. The central bank can’t decide whether the current “soft patch” is the start of something worse. This matters enormously for the direction of monetary policy. The ECB has already halted its process of “normalization,” choosing instead to extend a new round of cheap loans to the banks and to delay the expected resumption of interest rate hikes. But were the mood to darken significantly, with the euro zone perhaps entering a recession, the thorny question of whether to restart quantitative easing would suddenly reemerge.