What the ECB must not do, in the fight against inflation, “is ‘drive like a madman with the headlights off in the night”: to quote ‘Emozioni’ by Lucio Battisti by introducing the songwriter’s text into monetary policy is Fabio Panetta, a member of the Executive Board of the ECB, in a speech at a Center for European Reform event in London. “A data-driven calibration of monetary policy, well grounded in a clear reaction function, offers the best path – said Panetta warning of the risks of excessive tightening – this does not mean that we will not be resolute in the fight against inflation. It means be resolute in the right direction”.
Wage demands in the face of high inflation “do not ask for full compensation”, but rather for a redistribution of the burden imposed by rising prices without necessarily leading to a price-wage spiral. This was stated by Fabio Panetta, member of the Executive Board of the ECB. Workers “understood that if someone imposes a tax on our economy, it must be shared between capital and labour”, with companies actually recording good profits. And after all “faced with a 10% reduction in your purchasing power, it is right that you have some compensation”.
“The ECB should not unconditionally commit itself to its future moves” and should instead “calibrate” monetary policy so that it looks forward and can be modulated on the basis of economic data, also better clarifying its “reaction function”.
This was stated by Fabio Panetta, member of the Executive Committee of the ECB, in a speech at an event of the Center for European Reform in London. Panetta evoked “the risk of an excessive restriction” on monetary conditions: “with rates now in restrictive territory, what counts is the extent and duration of the restrictive conditions”.
The ECB Council “will continue to increase interest rates significantly at a constant pace and to keep them at sufficiently restrictive levels” to bring inflation back to 2%. This is stated in the Economic Bulletin of the central bank, which after the 50 basis point increase in rates on 2 February, “expects further increases” and “intends to raise interest rates by another 50 basis points at the next monetary policy meeting, in March, to then evaluate the subsequent evolution”.
The euro area economy has experienced a “significant slowdown” since mid-2022, and although better than expected in the fourth quarter, growth “is expected to remain weak in the short term”. However, economic activity in the 20 euro countries “has shown greater resilience than expected and should record a recovery in the coming quarters”. The European Central Bank writes it in the Economic Bulletin, noting the “unfavorable conditions for growth” given by the war in Ukraine and by geopolitical uncertainty, but also positive factors such as the gradual easing of supply bottlenecks, gas supplies have become more stable, the climate of confidence improving.
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