Why the ECB Won’t Loosen Its Policy Stance Further
Any new measures would backfire if governments and lawmakers continue to sit on the sidelines.
Mario Draghi is near the end of his term.
Photographer: Andreas Arnold/Bloomberg
The European Central Bank, after sharply revising downward its baseline growth projections and seeing no decisive lifting of the downside risks, could be tempted to signal at its Governing Council meeting on Wednesday that it will pursue a further loosening of its monetary policy stance. That would be consistent with the bank's record under the determined and bold leadership of President Mario Draghi, who hasn’t been shy about using unconventional measures to keep the euro zone from slipping into deflation. But the ECB is likely to, and should, refrain from such a move this time due to a growing appreciation of the costs and unintended consequences of the much-delayed handoff to a more comprehensive policy response.
There is increased recognition of the difficult 2019 outlook for the euro zone, which faces both internal and external challenges. This week, the International Monetary Fund followed the ECB by projecting sub-1.5 percent growth. As I have argued, Europe’s five largest economies all face domestic political transitions and uncertainties that preclude meaningful pro-growth policy efforts, even as regional cohesion is challenged and external demand softens. This week’s announcement by the Trump administration that it’s considering imposing tariffs on about $11 billion of imports from Europe adds to the uncertain outlook.