Central banks have scarcely covered themselves in glory these past few years. Most have one goal and one goal only: to keep inflation low. In most countries, they have spectacularly failed at this job. In much of the developed world, inflation has reached many multi-year highs. But bar Turkey’s, I can’t think of a central bank whose record has been as lamentable as the European Central Bank. At least its Turkish counterpart has the excuse of being under the thumb of Recep Erdogan, the country’s president, whose contributions to economics are on a par with Vladimir Putin’s to international diplomacy.
The ECB has now put itself in an impossible position. Only in the statutes is the ECB’s main goal to keep inflation close to but under 2%. For the past 10 years, rather than targeting inflation, monetary policy has been set with a view to keeping its weakest members from leaving the currency union. Bluntly, it is no longer an inflation-targeting central bank.